Real Convergence in Central and Eastern European EU Member States: Which Role for Exchange Rate Volatility?

39 Pages Posted: 3 Nov 2008

See all articles by Olga Arratibel

Olga Arratibel

European Central Bank (ECB)

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Reiner Martin

Joint Vienna Insitute; European Central Bank (ECB)

Date Written: September 18, 2008

Abstract

This paper analyzes the relation between exchange rate volatility and several macroeconomic variables, namely real per capita output growth, the credit cycle, the stock of inward foreign direct investment (FDI) and the current account balance, in the Central and Eastern European EU Member States. Using panel estimations for the period between 1995 and 2006, we find that lower exchange rate volatility is associated with higher growth (for relatively less financially developed economies), higher stocks of FDI (for relatively more open economies), higher current account deficits, and a more volatile development of the credit to GDP ratio.

Keywords: EU, Exchange Rate Volatility, Growth, FDI, Credit, Current Account, Catching-up, Convergence

JEL Classification: F3, F4, F5

Suggested Citation

Arratibel, Olga and Furceri, Davide and Martin, Reiner, Real Convergence in Central and Eastern European EU Member States: Which Role for Exchange Rate Volatility? (September 18, 2008). ECB Working Paper No. 929, Available at SSRN: https://ssrn.com/abstract=1219522

Olga Arratibel (Contact Author)

European Central Bank (ECB) ( email )

Eurotower
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Davide Furceri

University of Palermo ( email )

Viale delle Scienza
Palermo, 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Reiner Martin

Joint Vienna Insitute ( email )

Mariahilferstrasse 97
Wien, A-1090
Austria

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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