Catching up: the role of demand, supply and regulated price effects on the real exchange rates of four accession countries

MacDonald, R. and Wojcik, C. (2004) Catching up: the role of demand, supply and regulated price effects on the real exchange rates of four accession countries. Economics of Transition, 12(1), pp. 153-179. (doi: 10.1111/j.0967-0750.2004.00175.x)

Abstract

The main aim of this paper is to examine the exchange rate behaviour of a group of four transitional, EU accession countries, with a view to making policy recommendations regarding their full accession to the European Monetary Union. We employ a dynamic OLS panel estimator to investigate the relative importance of demand and supply influences on the exchange rates of these countries. Our analysis shows that both supply- and demand-side effects are important for the accession countries, although their overall effect on inflation differentials and competitiveness seems to be small. An additional focus of the paper is the examination of the role that administrated, or regulated, prices and the productivity of the distribution sector play in the real exchange rate dynamics. Using a unique database we show that administrative prices have been a powerful force behind price and real exchange developments for our group of accession countries. The distribution sector is shown to have an independent effect on the internal price ratio over and above that generated by the Balassa–Samuelson effect.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: MacDonald, Professor Ronald
• Authors: MacDonald, R., and Wojcik, C.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Economics of Transition
• ISSN: 0967-0750
• ISSN (Online): 1468-0351
• Published Online: 25 February 2004