Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners?

39 Pages Posted: 10 Jan 2006

See all articles by Aleš Bulíř

Aleš Bulíř

International Monetary Fund (IMF)

Katerina Smidkova

Czech National Bank (Deceased); Charles University - Economics Department (Deceased)

Date Written: February 2005

Abstract

Estimation and simulation of sustainable real exchange rates in some of the new EU accession countries point to potential difficulties in sustaining the ERM2 regime if entered too soon and with weak policies. According to the estimates, the Czech, Hungarian, and Polish currencies were overvalued in 2003. Simulations, conditional on large-model macroeconomic projections, suggest that under current policies those currencies would be unlikely to stay within the ERM2 stability corridor during 2004-10. In-sample simulations for Greece, Portugal, and Spain indicate both a much smaller misalignment of national currencies prior to ERM2, and a more stable path of real exchange rates over the medium term than can be expected for the new accession countries.

Keywords: Sustainable real exchange rates, foreign direct investment, ERM2

JEL Classification: F31, F33, F36, F47

Suggested Citation

Bulir, Ales and Smidkova, Katerina, Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners? (February 2005). IMF Working Paper No. 05/27, Available at SSRN: https://ssrn.com/abstract=874248

Ales Bulir (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Katerina Smidkova

Czech National Bank (Deceased)

Charles University - Economics Department (Deceased)

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