Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?
CESifo, Munich, 2007
CESifo Working Paper No. 1928
![](https://cesifo.org/DocImg/cesifo1_wp1928.jpg?c=1689236839)
We find that productivity gains in tradables cause an appreciation of the real exchange rate via both tradable and nontradable prices in the CEE-5 and have no affect in the Baltic countries, while they lead to a depreciation of the real exchange rate of tradables in OECD economies that overcompensates the appreciation due to nontradable prices. Rising net foreign liabilities lead to a real appreciation in the Baltic countries instead of the expected depreciation found in OECD and CEE-5 countries. These differences are due to the different impact of the fundamentals on the real exchange rate depending on the time horizon studied.
Monetary Policy and International Finance