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Real and Nominal Convergence Process - Different Methods of Comparison

The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague. Real and Nominal Convergence Process - Different Methods of Comparison. Jaromír Šindel ECES.

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Real and Nominal Convergence Process - Different Methods of Comparison

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  1. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Real and Nominal Convergence Process-Different Methods of Comparison Jaromír Šindel ECES

  2. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Topics • International Comparison • Purchasing parity concept, … • CEE countries and European Union • Importance of CEEC, desegregation of GDP, … • Alternative measure • Process of the real appreciation of national currency, …

  3. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Internatinal Comparison – PPP Concept • PPP • Comparative Price Level • Exchange Rate Deviation Index

  4. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague GPD per capita (in PPP $) and Comparative Price Level (OECD 30 = 100) in 2002 Real and Nominal Convergence Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  5. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague GDP growth - Slovakia Source: www.sme.sk

  6. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Real and Nominal Convergence PPP Development in Vysegrad Countries Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  7. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague GDP per capita in PPS (EU-12 = 100) Real convergence process Portugal Greece Slovenia Czech R. Slovakia Hungary Poland Source: Ministry of Finance, Czech Republic. 2005

  8. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague GDP per capita in euro (EU-12 = 100) Nominal convergence process Portugal Greece Slovenia Czech R. Slovakia Hungary Poland Source: Ministry of Finance, Czech Republic. 2005

  9. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Comparative price level development Comparative Price Level Portugal Greece Slovenia Czech R. Slovakia Hungary Poland Source: Ministry of Finance, Czech Republic. 2005

  10. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague GPD per capita (in PPP $) and Comparative Price Level (OECD 30 = 100) Real and Nominal Convergence Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  11. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Average wage in comparison with Austria in 2003 – which columns are in exchange rate terms and which one in PPP? PPP and Exchange rate comparison Source: Vintrová, R.: Co neodhaluje HDP při analýze ek. růstu a reálné konvergence. Working Paper CES VŠEM No. 1/2005

  12. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague International Comparison in 2002 Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  13. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague International Comparison in 2002 Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  14. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague International Comparison in 1999 Source: OECD: Purchasing Power Parities and Real Expenditures 1999 BENCHMARK YEAR, 2002.

  15. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague KV (expenditures p.c.) and CPL (both OECD 30 = 100) and PPP (per 1$) International Comparison in 2002 Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  16. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague KV (expenditures p.c.) and CPL (both OECD 30 = 100) and PPP (per 1$) International Comparison in 2002 Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  17. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague KV (expenditures p.c.) and CPL (both OECD 30 = 100) and PPP (per 1$) International Comparison in 2002 Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  18. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague KV (expenditures p.c.) and CPL (both OECD 30 = 100) and PPP (per 1$) International Comparison in 2002 Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

  19. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Alternative measure of growth or real convergence process • GDP growth in euro currency • The real convergence process of CEEC will be finished in Eurozone • The growth will be announced in euro currency • The cohesion of the real and nominal convergence process • Concept ot the Real Gross Domestic Income • Terms of trade development

  20. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Alternative measure of growth – GDP growth in euro • Euro • The real convergence process of CEEC will be finished in Eurozone • The growth will be announced in euro currency • Price convergence process • Later, but it has two channels – price differential and exchange rate development – real exchange rate appreciation • Case study of Czech Republic • Alternative measure • Growth in euro currency

  21. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Growth in national currency & in euro Growth in national currency in 1993-2002 (avg.=average) Growth in national currency in 1993-2002(avg.=average) Source: Šaroch, S., Tomšík, V., Srholec, M. (2003) www.ieep.cz

  22. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague GDP Growth in Czech Republic, 1993-1998 Case study – Czech Republic GDP Growth in Czech Republic, 1999-2002 Source: Šaroch, S., Tomšík, V., Srholec, M. (2003) www.ieep.cz

  23. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Case study – Czech Republic - Conclusions • First period • Price differentials were higher in first period • No nominal exchange rate appreciation • Second Period • Nominal exchange rate appreciation was the stronger channel in the second period • But in 2010 euro instead of CZK • The real convergence process of CEEC will be finished in Eurozone • The growth will be announced in euro currency, but no nominal appreciation (overflow into inflation) • Implications to ERM-II and Eurozone • Inflation and ER development – later …

  24. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Alternative measure - critique • Nominal and real convergence process put together • Yes, it is true, but … • Process of real exchange rate appreciation • !! Appreciation has to be sustainable • Quality measure error • Deregulation of prices • Balassa-Samuelson problem • FDI inflow with positive effect on current account development • Better conditions for exports – customs duty, political restrictions, psychological restrictions, transaction costs, … Source: Šaroch, S., Tomšík, V., Srholec, M. (2003) www.ieep.cz

  25. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Case studies – CEE countries - Conclusions • Data • Use data from Deutsche Bank database • Conclusions

  26. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Concept ot the Real Gross Domestic Income Terms of Trade Development Czech Rep. Germany Austria France Hungary Poland Slovakia Slovenia Source: Vintrová, R.: Co neodhaluje HDP při analýze ek. růstu a reálné konvergence. Working Paper CES VŠEM No. 1/2005

  27. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Concept ot the Real Gross Domestic Income Index of GDP growth per capita Czech Republic Slovakia Hungary Poland Source: Vintrová, R.: Co neodhaluje HDP při analýze ek. růstu a reálné konvergence. Working Paper CES VŠEM No. 1/2005 Rank of countries – GDP or RGDI development (average in 2001-2004) Source: Ždárek, V.,Ekonomická výkonnost země (alternativní pohled). Bulletin CES VŠEM, č. 8, 2005.

  28. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Concept ot the Real Gross Domestic Income Different Development of RGDI and GDP in Czech Republic Source: Vintrová, R., Ždárek, V.: HDP zrychluje, ale reálný důchod zpomaluje. (2005), ekonom.ihned.cz

  29. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Comparative price increases with real exchange rate appreciation Comparative Price Level CR = 100 2003 Increase in p.p. Czech Republic Slovakia Hungary Poland Source: ČNB: ANALYSES OF THE CZECH REPUBLIC’S CURRENT ECONOMIC ALIGNMENT WITH THE EURO AREA.2005. and Vintrová, R.: Co neodhaluje HDP při analýze ek. růstu a reálné konvergence. Working Paper CES VŠEM No. 1/2005

  30. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague GDP per capita in euro (EU-12 = 100) Nominal convergence process Portugal Greece Slovenia Czech R. Slovakia Hungary Poland Source: Ministry of Finance, Czech Republic. 2005

  31. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Comparative Price Level –PrivateFinal Consumption – September 2005 Source: OECD: Purchasing Power Parities and Real Expenditures 2002 BENCHMARK YEAR, 2005.

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