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

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Presentation on theme: "Jaromír Šindel ECES Real and Nominal Convergence Process - Different Methods of Comparison The Puzzles of Central and Eastern Europe Transformation and."— Presentation transcript:

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

2 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, … The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

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

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

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

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

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

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

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

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

11 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 Average wage in comparison with Austria in 2003 – which columns are in exchange rate terms and which one in PPP? The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague EURAustria = 100EUR (PPP)Austria = 100 Czech Rep.5312199443 Hungary5412296841 Poland497201 00643 Slovakia3461471931 Slovenia1 083431 44362 Estonia4301775132 Latvia2981262027 Lithunia3111264528 Austria2 4991002377100

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

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

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

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

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

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

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

19 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 The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

20 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 The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

21 Growth in national currency & in euro 1993199419951996199719981999200020012002Avg. CZ-0,32,75,84,4 -0,8-1,00,53,32,02,1 SVK-3,75,26,55,85,63,91,32,23,34,43,4 HUN-0,63,11,4 4,54,94,25,23,73,23,1 PLN3,85,17,16,06,94,84,0 1,01,34,4 EU-12-0,82,3 1,52,42,92,83,51,50,81,9 EU-15-0,32,82,51,72,62,92,83,41,60,92,1 Source: Šaroch, S., Tomšík, V., Srholec, M. (2003) www.ieep.cz Growth in national currency in 1993-2002 (avg.=average) The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague 1993199419951996199719981999200020012002Avg. CZ23,39,410,411,60,67,8-1,38,29,411,28,9 SVK17,09,911,39,510,85,1-0,815,25,96,99,0 HUN12,73,0-5,24,710,23,68,09,911,611,86,9 PLN16,38,214,921,112,85,91,616,912,4-4,010,4 EU-12-0,82,3 1,52,42,92,83,51,50,82,0 Growth in national currency in 1993-2002 (avg.=average)

22 Case study – Czech Republic 199319941995199619971998 average 1993-1998 GDP growth in CZK-0,32,75,84,4-0,8-1,01,7 Inflation in CZE20,810,09,18,98,410,611,2 CZK/EUR34,1134,0634,3134,0135,7535,8934,68 Nominal appreciation CZK/EUR6,8-0,1-1,50,9-5,1-0,40,0 Inflation in EU-124,03,23,02,51,91,42,7 Inflation differential16,86,86,16,46,59,28,6 Real appreciation CZK/EUR23,66,74,67,31,48,88,5 GDP growth in EUR23,39,410,411,60,67,810,3 Source: Šaroch, S., Tomšík, V., Srholec, M. (2003) www.ieep.cz GDP Growth in Czech Republic, 1993-1998 The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague GDP Growth in Czech Republic, 1999-2002 1999200020012002 average 1999-2002 average 1993-2002 GDP growth in CZK0,53,33,12,02,21,9 Inflation in CZE2,13,94,71,83,17,9 CZK/EUR36,8735,6134,0630,8134,3234,54 Nominal appreciation CZK/EUR-2,73,44,39,63,61,4 Inflation in EU-121,22,42,72,22,12,4 Inflation differential0,91,52,0-0,41,05,6 Real appreciation CZK/EUR-1,84,96,39,24,66,9 GDP growth in EUR-1,38,29,411,26,88,9

23 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 Euro zone –The growth will be announced in euro currency, but no nominal appreciation (overflow into inflation) Implications to ERM-II and Euro zone –Inflation and ER development – later … The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague

24 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, … The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Source: Šaroch, S., Tomšík, V., Srholec, M. (2003) www.ieep.cz

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

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

27 Concept ot the Real Gross Domestic Income Source: Vintrová, R.: Co neodhaluje HDP při analýze ek. růstu a reálné konvergence. Working Paper CES VŠEM No. 1/2005 Index of GDP growth per capita The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague 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. Czech Republic Slovakia Hungary Poland In turn ofDiffence (perc. points) GDPRGDI Czech Rep.41- 1,1 Hungary24- 0,2 Poland550,4 Slovakia120,7 Slovenia33- 0,5

28 Concept ot the Real Gross Domestic Income Source: Vintrová, R., Ždárek, V.: HDP zrychluje, ale reálný důchod zpomaluje. (2005), ekonom.ihned.cz Different Development of RGDI and GDP in Czech Republic The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague RGDIGDPDifferences (percentage points) 20002,13,9-1,8 20014,32,61,7 20023,71,52,2 20033,33,20,1 20044,64,40,2 Average 1996-20002,11,50,6 Average 1996-20042,92,10,8 Average 2001-20004,02,91,1 1st half of 20053,74,9-1,2

29 Comparative Price Level 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 Comparative price increases with real exchange rate appreciation The Puzzles of Central and Eastern Europe Transformation and Integration ECES, Prague Czech Republic Slovakia Hungary Poland Increase in p.p. CR = 100 2003

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

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

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