IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/20268.html
   My bibliography  Save this paper

The real exchange rate in transition economies

Author

Listed:
  • Grafe, Clemens
  • Wyplosz, Charles

Abstract

Real exchange rates appear to present a specific behaviour in the early phase of transition: they are largely unaffected by nominal exchange rate movements and exibit trend appreciation. The model presented here describes the transition process as the emergence of two new (traded and non-traded good) sectors and the decline of an inefficient and subsidised state sector. The absence of financial markets means that firms accumulate capital through retained earnings. Labour markets are imperfect giving rise to a wage gap. The model shows that the real exchange rate plays the crucial role of determining real wages. Through real wages it sets the pace for the development of the new sectors as workers are attracted out of the state sector. The link between growth and real appreciation differs from the usual Balassa Samuelson effect. The paper also explores the role of labour market distortions and foreign financing.

Suggested Citation

  • Grafe, Clemens & Wyplosz, Charles, 1998. "The real exchange rate in transition economies," LSE Research Online Documents on Economics 20268, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:20268
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/20268/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. M Schaffer, 1996. "Job Creation and Job Destruction in a Transition Economy: Ownership," CEP Discussion Papers dp0282, Centre for Economic Performance, LSE.
    2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, April.
    3. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition in Central Europe," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 283-330, National Bureau of Economic Research, Inc.
    4. J. Konings & H. Lehmann & M.E. Schaffer, 1996. "Job Creation and Job Destruction in a Transition Economy: Ownership, Firm Size," CERT Discussion Papers 9611, Centre for Economic Reform and Transformation, Heriot Watt University.
    5. Atkeson, Andrew & Kehoe, Patrick J, 1996. "Social Insurance and Transition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 377-401, May.
    6. Konings, Jozef & Lehmann, Hartmut & Schaffer, Mark E., 1996. "Job creation and job destruction in a transition economy: Ownership, firm size, and gross job flows in Polish manufacturing 1988-1991," Labour Economics, Elsevier, vol. 3(3), pages 299-317, October.
    7. Castanheira, Micael & Roland, Gérard, 1996. "Restructuring and Capital Accumulation in Transition Economies: A General Equilibrium Perspective," CEPR Discussion Papers 1372, C.E.P.R. Discussion Papers.
    8. Cornelli, Francesca & Portes, Richard & Schaffer, Mark E, 1996. "The Capital Structure of Firms in Central and Eastern Europe," CEPR Discussion Papers 1392, C.E.P.R. Discussion Papers.
    9. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 584-584.
    10. László Halpern & Charles Wyplosz, 1997. "Equilibrium Exchange Rates in Transition Economies," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 430-461, December.
    11. Dornbusch, Rudiger, 1982. "Stabilization policies in developing countries: What have we learned?," World Development, Elsevier, vol. 10(9), pages 701-708, September.
    12. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    13. Burda, Michael C, 1992. "Unemployment, Labour Market Institutions and Structural Change in Eastern Europe," CEPR Discussion Papers 746, C.E.P.R. Discussion Papers.
    14. Mr. Carlos A. Végh Gramont & Ms. Ratna Sahay & Mr. Guillermo Calvo, 1995. "Capital Flows in Central and Eastern Europe: Evidence and Policy Options," IMF Working Papers 1995/057, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:lic:licosd:13203 is not listed on IDEAS
    2. Lehmann, Hartmut & Wadsworth, Jonathan, 2000. "Tenures That Shook the World: Worker Turnover in Russia, Poland, and Britain," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 639-664, December.
    3. Boeri, Tito, 1997. "Heterogeneous workers, economic transformation and the stagnancy of transitional unemployment," European Economic Review, Elsevier, vol. 41(3-5), pages 905-914, April.
    4. Tyrowicz, Joanna & van der Velde, Lucas, 2018. "Labor reallocation and demographics," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 381-412.
    5. Konings, Jozef, 1997. "Firm growth and ownership in transition countries," Economics Letters, Elsevier, vol. 55(3), pages 413-418, September.
    6. Munich, Daniel & Svejnar, Jan, 2007. "Unemployment in East and West Europe," Labour Economics, Elsevier, vol. 14(4), pages 681-694, August.
    7. Bilsen, Valentijn & Konings, Jozef, 1998. "Job Creation, Job Destruction, and Growth of Newly Established, Privatized, and State-Owned Enterprises in Transition Economies: Survey Evidence from Bulgaria, Hungary, and Romania," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 429-445, September.
    8. Stanisław Cichocki & Paweł Kopiec, 2017. "Modelling labour reallocation during the Polish transition: a search-and-matching approach," Bank i Kredyt, Narodowy Bank Polski, vol. 48(6), pages 557-570.
    9. Kőrösi, Gábor, 2005. "Vállalati munkahelyteremtés és -rombolás [Corporate job creation and job destruction]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 825-845.
    10. Randolph Luca Bruno, 2003. "Speed of Transition, Unemployment Dynamics and Nonemployment Policies: Evidence from the Visegrad Countries," LEM Papers Series 2003/23, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    11. repec:eee:labchp:v:3:y:1999:i:pb:p:2711-2805 is not listed on IDEAS
    12. De Loecker, Jan & Konings, Jozef, 2003. "Creative Destruction and Productivity Growth in an Emerging Economy: Evidence from Slovenian Manufacturing," IZA Discussion Papers 971, Institute of Labor Economics (IZA).
    13. Cristina Fernández & Roberta García & Paloma Lopez-Garcia & Benedicta Marzinotto & Roberta Serafini & Juuso Vanhala & Ladislav Wintr, 2017. "Firm growth in Europe: An overview based on the COMPNET labour module," BCL working papers 107, Central Bank of Luxembourg.
    14. Geurts, Karen & Van Biesebroeck, Johannes, 2016. "Firm creation and post-entry dynamics of de novo entrants," International Journal of Industrial Organization, Elsevier, vol. 49(C), pages 59-104.
    15. Haltiwanger, John C. & Vodopivec, Milan, 2002. "Gross worker and job flows in a transition economy: an analysis of Estonia," Labour Economics, Elsevier, vol. 9(5), pages 601-630, November.
    16. Stepan Jurajda & Katherine Terrell, 2001. "What Drives the Speed of Job Reallocation during Episodes of Massive Adjustment?," CERGE-EI Working Papers wp170, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    17. repec:zbw:bofitp:2001_007 is not listed on IDEAS
    18. Hartmut Lehmann & Mark E. Schaffer, 2019. "Transition, Convergence, and Labor Market Adjustment in Prospect and in Hindsight," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(03), pages 09-12, October.
    19. De Loecker, Jan & Konings, Jozef, 2006. "Job reallocation and productivity growth in a post-socialist economy: Evidence from Slovenian manufacturing," European Journal of Political Economy, Elsevier, vol. 22(2), pages 388-408, June.
    20. Giulia Faggio, 2007. "Job Destruction, Job Creation and Unemployment in Transition Countries: What Can We Learn?," CEP Discussion Papers dp0798, Centre for Economic Performance, LSE.
    21. Roberto Álvarez & Holger Görg, 2011. "Multinationals as Stabilisers? Economic Crisis, Access to Finance, and Employment Growth," Journal of Development Studies, Taylor & Francis Journals, vol. 48(7), pages 847-863, June.
    22. Martin-Barroso, David & Nuñez-Serrano, Juan Andres & Turrion, Jaime & Velazquez, Francisco J., 2011. "The European Map of Job Flows," MPRA Paper 33602, University Library of Munich, Germany, revised 2011.
    23. Roberto Álvarez & Holger Görg, 2007. "Multinationals as Stabilizers?: Economic Crisis and Plant Employment Growth," Working Papers Central Bank of Chile 412, Central Bank of Chile.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:20268. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.