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Real exchange rate misalignments in CEECs: Have they hindered growth?

Real exchange rate misalignments in CEECs: Have they hindered growth?
Real exchange rate misalignments in CEECs: Have they hindered growth?

We study the impact of exchange rate misalignment on economic activity in nine Central and Eastern European economies. Exchange rate misalignments are computed from country-specific long-run exchange rate relationships with determinants suggested by open macroeconomic models such as interest rate differentials or the Balassa–Samuelson effect. There was a clear reduction in misalignments, but this has been reversed to some extent after 2008. Exchange rate overvaluation has a negative impact on economic activity. The effect of misalignments on economic activity seems to be nonlinear, as overvaluation has a stronger effect than undervaluation. Other factors of economic activity, including institutions, also show nonlinear effects.

Central and Eastern European countries, Growth, Panel smooth transition regression, Real exchange rate misalignments
0340-8744
733-756
Cuestas, Juan Carlos
e21c853f-d345-45d1-9a3c-40ef510a1e5f
Mourelle, Estefanía
e0434f4e-38b7-48f3-aa7a-57483dd48919
Regis, Paulo José
d696452e-72ef-48bc-9409-80996e297ca7
Cuestas, Juan Carlos
e21c853f-d345-45d1-9a3c-40ef510a1e5f
Mourelle, Estefanía
e0434f4e-38b7-48f3-aa7a-57483dd48919
Regis, Paulo José
d696452e-72ef-48bc-9409-80996e297ca7

Cuestas, Juan Carlos, Mourelle, Estefanía and Regis, Paulo José (2020) Real exchange rate misalignments in CEECs: Have they hindered growth? Empirica, 48 (4), 733-756. (doi:10.1007/s10663-019-09454-5).

Record type: Article

Abstract

We study the impact of exchange rate misalignment on economic activity in nine Central and Eastern European economies. Exchange rate misalignments are computed from country-specific long-run exchange rate relationships with determinants suggested by open macroeconomic models such as interest rate differentials or the Balassa–Samuelson effect. There was a clear reduction in misalignments, but this has been reversed to some extent after 2008. Exchange rate overvaluation has a negative impact on economic activity. The effect of misalignments on economic activity seems to be nonlinear, as overvaluation has a stronger effect than undervaluation. Other factors of economic activity, including institutions, also show nonlinear effects.

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2019 Cuestas Mourelle Regis RERM OA draft - Accepted Manuscript
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e-pub ahead of print date: 16 July 2019
Published date: November 2020
Keywords: Central and Eastern European countries, Growth, Panel smooth transition regression, Real exchange rate misalignments

Identifiers

Local EPrints ID: 439103
URI: http://eprints.soton.ac.uk/id/eprint/439103
ISSN: 0340-8744
PURE UUID: 01de784c-727b-4e0e-b258-32830f4e0de1
ORCID for Paulo José Regis: ORCID iD orcid.org/0000-0002-3256-464X

Catalogue record

Date deposited: 03 Apr 2020 16:30
Last modified: 28 Apr 2022 05:57

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Contributors

Author: Juan Carlos Cuestas
Author: Estefanía Mourelle

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