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Productivity Shocks and Real Effective Exchange Rates

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  • Joscha Beckmann
  • Ansgar Belke
  • Robert Czudaj

Abstract

This paper provides new insights into the relationship between exchange rates and productivity developments for European Economies. We focus on the question whether productivity changes have a long-run impact on real effective exchange rates for a large number of European economies. Focusing on a sample period running from 1995 until 2013, we adopt a cointegrated vector autoregressive approach and distinguish between long-run equilibrium, short-run dynamics and long-run impact of shocks. Our findings show that for several industrialized economies, real effective exchange rates and labor productivity are not related over the long-run. A possible explanation for this result is that wage developments do not reflect increases in labor productivity to a large degree, which prevents a transmission to the real effective exchange rate through the price channel. The results for Central and Eastern European Countries are more encouraging since a positive impact of labor productivity on real effective exchange rate is frequently observed.

Suggested Citation

  • Joscha Beckmann & Ansgar Belke & Robert Czudaj, 2015. "Productivity Shocks and Real Effective Exchange Rates," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 502-515, August.
    • Handle: RePEc:bla:rdevec:v:19:y:2015:i:3:p:502-515
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    File URL: http://hdl.handle.net/10.1111/rode.12165
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    References listed on IDEAS

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    1. Stillwagon, Josh R., 2016. "Non-linear exchange rate relationships: An automated model selection approach with indicator saturation," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 84-109.
    2. Simeon Coleman & Juan Carlos Cuestas, 2024. "On the evolution of competitiveness in Central and Eastern Europe: Is it broken?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 2911-2926, July.
    3. Jingfei Wu & Mohsen Bahmani-Oskooee & Tsangyao Chang, 2018. "Revisiting purchasing power parity in G6 countries: an application of smooth time-varying cointegration approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(1), pages 187-196, February.

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