Sustainable Real Exchange Rates in the New EU Member States: What did the Great Recession Change?

25 Pages Posted: 1 Feb 2011

See all articles by Katerina Smídková

Katerina Smídková

Czech National Bank (CNB) (Deceased)

Jan Babecký

Czech National Bank (CNB)

Aleš Bulíř

International Monetary Fund (IMF)

Date Written: August 2010

Abstract

The Great Recession affected export and import patterns in our sample countries, and these changes, coupled with a more volatile external environment, have profound impact on our estimates of real exchange rate misalignments and projections of sustainable real exchange rates. We find that real misalignments in several countries with pegged exchange rates and excessive external liabilities widened relative to earlier estimates. While countries with balanced net trade positions are expected to continue to experience appreciation during 2010-2014, several currencies are likely to require real depreciation to maintain sustainable net external debt. Our estimates point to somewhat larger disequilibria than those of IMF country teams, however, any estimates of equilibrium exchange rates are subject to sizable uncertainty.

Keywords: Bilateral trade, Currencies, Economic models, Economic recession, European Economic and Monetary Union, Exchange rate regimes, Exports, Foreign direct investment, Imports, Price elasticity, Real effective exchange rates

Suggested Citation

Smídková, Katerina and Babecky, Jan and Bulir, Ales, Sustainable Real Exchange Rates in the New EU Member States: What did the Great Recession Change? (August 2010). IMF Working Paper No. 10/198, Available at SSRN: https://ssrn.com/abstract=1750686

Katerina Smídková

Czech National Bank (CNB) (Deceased)

Jan Babecky (Contact Author)

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Ales Bulir

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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