Real currency appreciation in accession countries : Balassa-Samuelson and investment demand

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Title: Real currency appreciation in accession countries : Balassa-Samuelson and investment demand
Author: Fischer, Christoph
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 8/2002
Year of publication: 2002
Publication date: 10.7.2002
Published in: Published in Review of World Economics/Weltwirtschaftliches Archiv vol. 140, no 2 (2004), pp. 179-210
Pages: 32 s.
Keywords: valuuttakurssit; häiriöt; tuottavuus; KIE; revalvaatio; valuutat; mallit; siirtymätaloudet; kansantaloustiede; Bofit-kokoelma; hakijamaat; Balassa-Samuelson effect; uudet EU-maat
JEL: F31; F41; C33
Abstract: The Balassa-Samuelson effect is usually seen as the prime explanation of the continuous real appreciation of central and east European (CEE) transition countries' currencies against their western counterparts.The response of a small country's real exchange rate to various shocks is derived in a simple model.It is shown that productivity shocks work not only through a Balassa-type supply channel but also through an investment demand channel. Therefore, empirical evidence apparently in favour of Balassa-Samuelson effects may require a re-interpretation.The model is estimated for a panel of CEE countries.The results are consistent with the model, plausibly explain the observed real appreciation and support the existence of the proposed investment demand channel.JEL classification: F31, F41, C33
Rights: https://helda.helsinki.fi/bof/copyright


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