The impact of real exchange rates on price competitiveness in Eastern European countries


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The subject of this paper is empirical research on studies of exchange rates in Eastern European countries, such as Albania, Bulgaria, Bosnia and Herzegovina, Belarus, Czech Republic, Estonia, Croatia, Hungary, Latvia, Lithuania, Moldova, (North) Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia, in order verify the validity of theories that explain these changes. This research aims to explain the mixed evidence of the Balassa-Samuelson effect in Ukraine, taking into account the intentions of Ukraine to become a member of the European Union. Unlike previous works, the attention is shifted to a review of empirical evidence and the identification of main factors that limit the ability to verify the theory. The main conclusion is that all the currencies studied underwent substantial real appreciations during the study period. Thus, it can be concluded that an adequate monetary policy in countries under study is very important, given that local exchange markets are not sustainable enough and the volatility of exchange operations is higher than in countries with developed economies. However, the Balassa-Samuelson Hypothesis (BSH) can explain the impact of the real exchange rate due to changes in productivity in countries in transition.

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    • Figure 1. REERtCR for countries that introduced the euro
    • Figure 2. REERtCR for EU countries with non-euro currencies
    • Figure 3. REERtCR for non-EU countries
    • Figure 4. QtPL for countries that introduced the euro
    • Figure 5. QtPL for EU countries with non-euro currencies
    • Figure 6. QtPL for non-EU countries
    • Table 1. Review of Egert’s studies on the Balassa-Samuelson Hypothesis in selected European countries
    • Table 2. Review of studies on the Balassa-Samuelson Hypothesis in Romania
    • Table 3. Testing for the Balassa-Samuelson Effect
    • Investigation
      Nadiia Proskurnina
    • Resources
      Nadiia Proskurnina, Rosario Cervantes-Martinez
    • Supervision
      Nadiia Proskurnina
    • Writing – review & editing
      Nadiia Proskurnina
    • Conceptualization
      Jürgen Kähler
    • Formal Analysis
      Jürgen Kähler
    • Methodology
      Jürgen Kähler
    • Project administration
      Jürgen Kähler
    • Visualization
      Jürgen Kähler
    • Writing – original draft
      Jürgen Kähler
    • Data curation
      Rosario Cervantes-Martinez
    • Software
      Rosario Cervantes-Martinez
    • Validation
      Rosario Cervantes-Martinez