Net capital flows to and the real exchange rate of Western Balkan countries
This paper uses Granger causality tests to assess the linkages between changes in the real exchange rate and net capital inflows using the example of Western Balkan countries, which have suffered from low competitiveness and external imbalances for many years. The real exchange rate is a me...
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Faculty of Economics, Belgrade
2015-01-01
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doaj-47a3788a2a6c4f79bb925b9335df714b2020-11-25T00:12:19ZengFaculty of Economics, BelgradeEkonomski Anali0013-32641820-73752015-01-0160205315210.2298/EKA1505031G0013-32641505031GNet capital flows to and the real exchange rate of Western Balkan countriesGabrisch Hubert0Halle Institute for Economic Research, Halle, GermanyThis paper uses Granger causality tests to assess the linkages between changes in the real exchange rate and net capital inflows using the example of Western Balkan countries, which have suffered from low competitiveness and external imbalances for many years. The real exchange rate is a measure of a country’s price competitiveness, and the paper uses two concepts: relative unit labour cost and relative inflation differential. The sample consists of six Western Balkan countries for the period 1996-2012, relative to the European Union (EU). The main finding is that changes in the net capital flows precede changes in relative unit labour costs and not vice versa. Also, there is evidence that net capital flows affect the inflation differential of countries, although to a less discernible extent. This suggests that the increasing divergence in the unit labour cost between the EU and Western Balkan countries up to the global financial crisis was at least partly the result of net capital inflows. The paper adds to the ongoing debate on improving cost competitiveness through wage restrictions as the main vehicle to avert the accumulation of current account imbalances. It shows the importance of changes in the exchange rate regime, reform of the interaction between the financial and the real sector, and financial supervision and structural change.http://www.doiserbia.nb.rs/img/doi/0013-3264/2015/0013-32641505031G.pdfCapital flowsreal exchange rateGranger causalityWestern Balkan countries |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Gabrisch Hubert |
spellingShingle |
Gabrisch Hubert Net capital flows to and the real exchange rate of Western Balkan countries Ekonomski Anali Capital flows real exchange rate Granger causality Western Balkan countries |
author_facet |
Gabrisch Hubert |
author_sort |
Gabrisch Hubert |
title |
Net capital flows to and the real exchange rate of Western Balkan countries |
title_short |
Net capital flows to and the real exchange rate of Western Balkan countries |
title_full |
Net capital flows to and the real exchange rate of Western Balkan countries |
title_fullStr |
Net capital flows to and the real exchange rate of Western Balkan countries |
title_full_unstemmed |
Net capital flows to and the real exchange rate of Western Balkan countries |
title_sort |
net capital flows to and the real exchange rate of western balkan countries |
publisher |
Faculty of Economics, Belgrade |
series |
Ekonomski Anali |
issn |
0013-3264 1820-7375 |
publishDate |
2015-01-01 |
description |
This paper uses Granger causality tests to assess the linkages between
changes in the real exchange rate and net capital inflows using the example
of Western Balkan countries, which have suffered from low competitiveness and
external imbalances for many years. The real exchange rate is a measure of a
country’s price competitiveness, and the paper uses two concepts: relative
unit labour cost and relative inflation differential. The sample consists of
six Western Balkan countries for the period 1996-2012, relative to the
European Union (EU). The main finding is that changes in the net capital
flows precede changes in relative unit labour costs and not vice versa. Also,
there is evidence that net capital flows affect the inflation differential of
countries, although to a less discernible extent. This suggests that the
increasing divergence in the unit labour cost between the EU and Western
Balkan countries up to the global financial crisis was at least partly the
result of net capital inflows. The paper adds to the ongoing debate on
improving cost competitiveness through wage restrictions as the main vehicle
to avert the accumulation of current account imbalances. It shows the
importance of changes in the exchange rate regime, reform of the interaction
between the financial and the real sector, and financial supervision and
structural change. |
topic |
Capital flows real exchange rate Granger causality Western Balkan countries |
url |
http://www.doiserbia.nb.rs/img/doi/0013-3264/2015/0013-32641505031G.pdf |
work_keys_str_mv |
AT gabrischhubert netcapitalflowstoandtherealexchangerateofwesternbalkancountries |
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1725399763375882240 |