The role of real exchange rate during accession process to European Union. The case of the Czech Republic, Poland and Hungary
2002
Borkovec, P. | Lacina, L. (Mendelova Zemedelska a Lesnicka Univ., Brno (Czech Republic). Ustav Financi)
The aim of the article is to discuss the role of exchange rate in the process of price adjustment to main trading partner level and to identify influence of changes of real exchange rates on current balance deficits. The hypothesis is stated as follows: If a country run higher inflation than its main trading partner (positive inflation differential), and this differential is not fully compensated by the nominal depreciation of currency, real exchange rates appreciating. An appreciation of the real exchange rate affecting competitiveness of the domestic firm and thus can lead to the problems with trade and current balance deficits, unemployment and finally speculative attacks on currency with all its negative effects (interest rates growth, inflation, economic recession, unemployment, etc.). Analysis is done by calculation of real exchange rate development in three EU candidate countries - the Czech Republic, Poland and Hungary. Authors then compare its foundings with nominal exchange rate development, inflation differential and current account deficits.
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