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Equilibrium Real Exchange Rates in Transition

Author

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  • Halpern, László
  • Wyplosz, Charles

Abstract

This paper tests two central assumptions regarding transforming economies: that the initial exchange rates were strongly undervalued and that the subsequent evolution of the real exchange rate was both a response to the initial undervaluation and an equilibrium real appreciation. The econometric results support both assumptions. The degree of initial overvaluation varies from country to country, ranging from very little in the case of Hungary to more than 100% in most other countries. It is estimated using a sample of 49 high-and middle-income countries, with five observations per country (1970, 1975, 1980, 1985, 1990). The subsequent process of equilibrium appreciation is estimated with pooled data for six countries (Croatia, the Czech Republic, Hungary, Poland, Slovakia and Slovenia) covering the period after inflation stabilization.

Suggested Citation

  • Halpern, László & Wyplosz, Charles, 1995. "Equilibrium Real Exchange Rates in Transition," CEPR Discussion Papers 1145, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1145
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    More about this item

    Keywords

    Central and Eastern Europe; Exchange Rate; Overvaluation; Transition;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • P41 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Planning, Coordination, and Reform
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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