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Labor Productivity and Real Exchange Rate: The Balassa-Samuelson Disconnect in the former Yugoslav Republic of Macedonia

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  • Mr. Boileau Loko
  • Ms. Anita Tuladhar

Abstract

This paper seeks to investigate the transmission mechanisms linking productivity to the real exchange rate in the former Yugoslav Republic of Macedonia. At first glance, the stylized facts-low labor productivity growth and a trend real depreciation-suggest that a Balassa- Samuelson effect is in play. We find that the relationship between the two is not a result of the traditional Balassa-Samuelson effect. Instead, the depreciation of the real exchange rate reflects mainly the behavior of prices in the tradable sector. We argue that the depreciating real exchange rate may reflect a prolonged transition associated with slow technological growth and the low quality of the country's tradable-goods basket.

Suggested Citation

  • Mr. Boileau Loko & Ms. Anita Tuladhar, 2005. "Labor Productivity and Real Exchange Rate: The Balassa-Samuelson Disconnect in the former Yugoslav Republic of Macedonia," IMF Working Papers 2005/113, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/113
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    2. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
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    4. Engel, Charles, 2000. "Long-run PPP may not hold after all," Journal of International Economics, Elsevier, vol. 51(2), pages 243-273, August.
    5. Jörg Rahn, 2003. "Bilateral Equilibrium Exchange Rates of the EU Accession Countries against the Euro," Quantitative Macroeconomics Working Papers 20306, Hamburg University, Department of Economics.
    6. International Monetary Fund, 2003. "Competitiveness in the Baltics in the Run-Up to EU Accession," IMF Staff Country Reports 2003/114, International Monetary Fund.
    7. repec:zbw:bofitp:2003_011 is not listed on IDEAS
    8. Ms. Piritta Sorsa & Dimitar Chobanov, 2004. "Competitiveness in Bulgaria: An Assessment of the Real Effective Exchange Rate," IMF Working Papers 2004/037, International Monetary Fund.
    9. Mr. Ronald MacDonald & Mr. Luca A Ricci, 2001. "PPP and the Balassa Samuelson Effect: The Role of the Distribution Sector," IMF Working Papers 2001/038, International Monetary Fund.
    10. Mr. Jaewoo Lee & Man-Keung Tang, 2003. "Does Productivity Growth Lead to Appreciation of the Real Exchange Rate?," IMF Working Papers 2003/154, International Monetary Fund.
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    Citations

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    Cited by:

    1. Josip Funda & Gorana Lukiniæ & Igor Ljubaj, 2007. "Assessment of the Balassa-Samuelson Effect in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 31(4), pages 321-351.
    2. Miss Eva Gutierrez, 2006. "Export Performance and External Competitiveness in the former Yugoslav Republic of Macedonia," IMF Working Papers 2006/261, International Monetary Fund.
    3. Bogoev, Jane & Bojceva Terzijan, Sultanija & Égert, Balázs & Petrovska, Magdalena, 2008. "Real Exchange Rate Dynamics in Macedonia: Old Wisdoms and New Insights," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-19.
    4. International Monetary Fund, 2008. "Algeria: Selected Issues," IMF Staff Country Reports 2008/104, International Monetary Fund.
    5. Mirjana Miletic, 2012. "Estimating the Impact of the Balassa-Samuelson Effect in Central and Eastern European Countries: A Revised Analysis of Panel Data Cointegration Tests," Working papers 22, National Bank of Serbia.
    6. Eva Gutierrez, 2007. "Export Performance and External Competitiveness in the Former Yugoslav Republic of Macedonia," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 5(2), pages 203-224.
    7. Mirjana Miletić, 2012. "Estimating the Impact of the Balassa-Samuelson Effect in Central and Eastern European Countries: A Revised Analysis of Panel Data Cointegration Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(4), pages 475-499, September.
    8. repec:nsb:wpaper:22 is not listed on IDEAS

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