Equilibrium Exchange Rates in Central and Eastern Europe: A Meta-Regression Analysis

This paper analyses the ever-growing literature on equilibrium exchange rates in the new EU member states of Central and Eastern Europe in a quantitative manner using meta-regression analysis. The results indicate that the real misalignments reported in the literature are systematically influenced, inter alia, by the underlying theoretical concepts (Balassa-Samuelson effect, Behavioural Equilibrium Exchange Rate, Fundamental Equilibrium Exchange Rate) and by the econometric estimation methods. The important implication of these findings is that a systematic analysis is needed in terms of both alternative economic and econometric specifications to assess equilibrium exchange rates.http://deepblue.lib.umich.edu/bitstream/2027.42/40155/3/wp769.pd

Equilibrium exchange rates in Central and Eastern Europe: A meta-regression analysis

This paper analyses the ever-growing literature on equilibrium exchange rates in the new EU member states of Central and Eastern Europe in a quantitative manner using meta-regression analysis. The results indicate that the real misalignments reported in the literature are systematically influenced, inter alia, by the underlying theoretical concepts (Balassa-Samuelson effect, Behavioural Equilibrium Exchange Rate, Fundamental Equilibrium Exchange Rate) and by the econometric estimation methods. The important implication of these findings is that a systematic analysis is needed in terms of both alternative economic and econometric specifications to assess equilibrium exchange rates.equilibrium exchange rate; Balassa-Samuelson effect; meta-analysis

Equilibrium Exchange Rates in Central and Eastern Europe: A Meta-Regression Analysis

This paper analyses the ever-growing literature on equilibrium exchange rates in the new EU member states of Central and Eastern Europe in a quantitative manner using meta-regression analysis. The results indicate that the real misalignments reported in the literature are systematically influenced, inter alia, by the underlying theoretical concepts (Balassa-Samuelson effect, Behavioural Equilibrium Exchange Rate, Fundamental Equilibrium Exchange Rate) and by the econometric estimation methods. The important implication of these findings is that a systematic analysis is needed in terms of both alternative economic and econometric specifications to assess equilibrium exchange rates.equilibrium exchange rate, Balassa-Samuelson effect, meta-analysis

Corporate performance and market structure during transition in Hungary

ITransition started by a sudden collapse of corporate efficiency, as one important element of the transformational recession. It was followed by a consolidation period, with rapidly increasing efficiency and improving returns to scale. During this period performance was frequently improved by downsizing, thus fast improving corporate performance could not be translated into economic growth. This consolidation period ended in 1995-6, after that mean firm level efficiency only changed slowly. However, the March 1995 stabilization created a favourable environment for substantial investments into the Hungarian corporate sector. These investments largely increased the market share of the better performing firms and sectors, and the massive investments, together with substantial structural improvements brought about rapid economic growth. Market characteristics play a changing role during transition. Import competition, sectoral concentration and efficiency are important explanatory factors for the development of market share of a firm. Heterogeneity can be observed across sectors, according to ownership and to size. The differences, however, are not that large and were diminishing, what makes the hypothesis of the importance of market environment in the determination of corporate performance plausible. One of the major tasks facing a transition economy is to create the competitive environment of a properly functioning market economy. This paper attempts to analyse the relationship of market structure, market imperfections and corporate performance by mark-up pricing. Our results clearly indicate that substantial market imperfections exist in the Hungarian manufacturing sector. These imperfections can yield substantial rents. However, foreign owned firms have larger chance for exploiting market imperfections and can collect larger rents than domestic firms.Firm in transition economy, efficiency, market structure

Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues

In this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc. In particular, we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the transition economies. Amongst our findings is the result that the trend appreciation usually observed for the exchange rates of these economies is affected by factors other than the usual Balassa-Samuelson effect, such as the behaviour of the real exchange rate of the open sector and regulated prices. We then consider three main sources of uncertainty relating to the implementation of an equilibrium exchange rate model, namely: differences in the theoretical underpinnings; differences in the econometric estimation techniques; and differences relating to the time series and cross-sectional dimensions of the data. The ensuing three-dimensional space of real misalignments is probably a useful tool in determining the direction of a possible misalignment rather than its precise size.http://deepblue.lib.umich.edu/bitstream/2027.42/40179/3/wp793.pd

Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues

In this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc. In particular, we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the transition economies. Amongst our findings is the result that the trend appreciation usually observed for the exchange rates of these economies is affected by factors other than the usual Balassa-Samuelson effect, such as the behaviour of the real exchange rate of the open sector and regulated prices. We then consider three main sources of uncertainty relating to the implementation of an equilibrium exchange rate model, namely: differences in the theoretical underpinnings; differences in the econometric estimation techniques; and differences relating to the time series and cross-sectional dimensions of the data. The ensuing three-dimensional space of real misalignments is probably a useful tool in determining the direction of a possible misalignment rather than its precise size.equilibrium exchange rate, Purchasing Power Parity, trend appreciation, Balassa-Samuelson effect, productivity, inflation differential, tradable prices, regulated prices, Fundamental Equilibrium Exchange Rate, Behavioural Equilibrium Exchange Rate, Permanent Equilibrium Exchange Rate, NATREX, CHEER, transitional economies, euro.

Imported Inputs and Productivity

We estimate a model of importers in Hungarian micro data and conduct counterfactual policy analysis to investigate the effect of imports on productivity. We find that importing all foreign varieties would increase firm productivity by 12 percent, almost two-fifths of which is due to imperfect substitution between foreign and domestic goods. The effectiveness of import use is higher for foreign firms and increases when a firm becomes foreign-owned. Our estimates imply that during 1993-2002 one-third of the productivity growth in Hungary was due to imported inputs. Simulations show that the productivity gain from a tariff cut is largest when the economy has many importers and many foreign firms, implying policy complementarities between tariff cuts, dismantling non-tariff barriers, and FDI liberalization.

Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary

Under perfect competition and constant returns to scale, firms producing homogeneous products set their prices at their marginal costs which also equal their average costs. However, the departure from these standard assumptions has important implications with respects to the derived theoretical results and the validity of the related empirical analysis. In particular, monopolistic firms will charge a markup over their marginal costs. We show that firms’ markups tend to be directly associated with the employed production technology, more specifically with their returns to scale. Accordingly, we analyze the implications for the markup ratios from the incidence of non-constant returns to scale. We present quantitative results illustrating the effect of the returns to scale index on the firms’ price markups, as well as the relationship between the two indicators, on the basis of firm-level data for Bulgarian and Hungarian manufacturing firms.http://deepblue.lib.umich.edu/bitstream/2027.42/40096/3/wp710.pd

A gazdagsági stagnálás "színe" és fonákja = The “bright” and gloomy side of economic stagnation : Jó az exporttöbblet és az adósságcsökkenés, de rossz a tőkekiáramlás és a beruházás-visszaesés?

Magyarország európai összehasonlításban kiemelkedő exporttöbblete, s az ország ebből is következő jelentős nettó külföldi hitelnyújtása voltaképpen tükörképe a fizetési mérleg pénzügyi mérlegében regisztrált jókora hiánynak (a tőke kiáramlásának) és a magánszektor, illetve az ország mérséklődő külső eladósodásának. E folyamatok hátterében azonban a gazdaság lehangoló jövedelmi, fogyasztási és beruházási folyamatai állnak. Ezért indokolatlan egyfelől sikerként ünnepelni az exporttöbbletet, másfelől sajnálkozni a tőke kiáramlásán és az alacsony (csökkenő) beruházási rátán. Ezek a jelenségek ugyanarról szólnak különböző metszetben, s azokat még csak nem is közgazdasági teóriák, hanem egyszerű mérlegösszefüggések kapcsolják össze. Miközben nemzetközi összehasonlításban számszerűsítjük ezeket az összefüggéseket, egy félreértésre és egy mellőzött jelenségre is felhívjuk a figyelmet. A 2012-ben tapasztalt jelentős tőkekiáramlást olykor „tőkemenekítésként” értelmezik, ez azonban nem olvasható ki az adatokból. Ellenben alig fordul figyelem arra, hogy a magánszektor nettó (amortizáció nélkül számított) beruházásai példátlanul alacsony szintre, a GDP 1%-ára csökkentek. Beruházási fordulat nélkül sem az exportnövekedés fennmaradására, sem a gazdaság élénkülésére nem lehet számítani, ám a beruházások és a lakossági fogyasztás remélhető emelkedése növekvő importtal jár, ez leapaszthatja az exporttöbbletet, ami viszont átmenetileg visszafoghatja a gazdasági növekedést. | Over the last few years Hungary has posted large and increasing surpluses in its trade balance. The country has also become a net lender to the rest of the world, revealed by the surplus in the current and capital account of the balance of payments. These developments are mirrored by significant deficits (capital outflows) recorded in the financial account, as well as by the fall in external indebtedness of both the private sector and the country as a whole. However, it is the poor performance of the economy regarding changes in income, consumption and investments – partly explained by deleveraging in the private sector – which underlies its external performance. Therefore, it makes little sense to rejoice over the surplus in the trade balance, while being unhappy about capital outflows and the low (decreasing) investment rate. These developments reveal different sides of the same story, where the various aspects are related to each other by macroeconomic accounting identities. While our paper aims to quantify these relationships in international comparison, it also makes the point that capital outflows should not be mixed up with “capital flight”; we found no evidence of the latter. We call attention to the fact that private investments, net of capital consumption, decreased to an extremely low level. Without a turn in investment activity, there is no hope for maintaining export growth and revitalizing domestic demand. However, the growth in investments is likely to decrease net exports, which may be a drag on economic growth