WIIW Research Report No. 232 (December 1996)

The Central and East European Currency Phenomenon Reconsidered

(by Frank Stolze)

ABSTRACT

Regardless of the particular policies, all CEECs have shared two important similarities in exchange rate developments. First, in terms of purchasing power parity, the CEE currencies were deeply undervalued in 1990. Second, all CEECs witnessed, in the subsequent years, a real appreciation of their currencies. In the present paper it is argued that the similar currency developments in the reform economies may be a consequence of adjusting relative prices of tradables and nontradables.

Keywords: Central and Eastern Europe; exchange rate; relative prices; inflation; tradables/nontradables

JEL classification: O52, O57, E31, F31

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