Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212506 
Year of Publication: 
2002
Series/Report no.: 
BOFIT Discussion Papers No. 8/2002
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
The Balassa-Samuelson effect is usually seen as the prime explanation of the continuous real appreciation of central and east European (CEE) transition countries' currencies against their western counterparts.The response of a small country's real exchange rate to various shocks is derived in a simple model.It is shown that productivity shocks work not only through a Balassa-type supply channel but also through an investment demand channel. Therefore, empirical evidence apparently in favour of Balassa-Samuelson effects may require a re-interpretation.The model is estimated for a panel of CEE countries.The results are consistent with the model, plausibly explain the observed real appreciation and support the existence of the proposed investment demand channel.
JEL: 
F31
F41
C33
Persistent Identifier of the first edition: 
ISBN: 
951-686-832-0
Document Type: 
Working Paper

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