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In this article we study the impact of real effective exchange rate misalignments, based on determinants, including different types of foreign capital inflows, on GDP growth in the EU. This can provide a useful contribution to understanding the causal link between inflows, real effective exchange rate disequilibria and GDP growth during both the boom and the crisis period. For this analysis, we use a panel of 27 EU countries for the period 1994-2012, with annual frequency. We find that the core countries have been mostly undervalued from the crisis onwards, while the periphery (excluding Ireland) were overvalued starting from 2003-2004, as expected. Concerning the new Member States, these are persistently overvalued for the entire time span. The results seem to be generally driven by the inflows of banking loans more than by FDIs or portfolio investments. In the second stage, we study the influence of exchange rate misalignments and volatilities on growth. We argue that the real effective exchange rate misalignments associated with the inflows have been a further cause for decline in GDP, in a long-run perspective, while they do not play a role in the short run. The exchange rate volatilities and the undervaluation dummy are not robust in affecting GDP growth, while spillovers and global factors seem to matter in all the specifications both in the short and long run.

In this article we study the impact of real effective exchange rate misalignments, based on determinants, including different types of foreign capital inflows, on GDP growth in the EU. This can provide a useful contribution to understanding the causal link between inflows, real effective exchange rate disequilibria and GDP growth during both the boom and the crisis period. For this analysis, we use a panel of 27 EU countries for the period 1994-2012, with annual frequency. We find that the core countries have been mostly undervalued from the crisis onwards, while the periphery (excluding Ireland) were overvalued starting from 2003-2004, as expected. Concerning the new Member States, these are persistently overvalued for the entire time span. The results seem to be generally driven by the inflows of banking loans more than by FDIs or portfolio investments. In the second stage, we study the influence of exchange rate misalignments and volatilities on growth. We argue that the real effective exchange rate misalignments associated with the inflows have been a further cause for decline in GDP, in a long-run perspective, while they do not play a role in the short run. The exchange rate volatilities and the undervaluation dummy are not robust in affecting GDP growth, while spillovers and global factors seem to matter in all the specifications both in the short and long run.

This empirical study considers the pass-through of key nominal exchange rates and commodity prices to consumer prices in the Commonwealth of Independent States (CIS), taking into account the effect of idiosyncratic and common factors influencing prices. In order to do that, given the relatively short window of available quarterly observations (1999-2014), we choose heterogeneous panel frameworks and control for cross-sectional dependence. The exchange rate passthrough is found to be relatively high and rapid for CIS countries in the case of the nominal effective exchange rate, but not significant for the bilateral rate with the US dollar. We also show that global factors in combination with financial gaps and commodity prices are important. In the case of large rate swings, the exchange rate pass-through of the bilateral rate with the US dollar becomes significant and similar to that of the nominal effective exchange rate.

Exchange rate assessment is becoming increasingly relevant for economic surveillance in the EU. The persistence of different wage and productivity dynamics among EMU countries or EU members with a fixed exchange regime with euro, coupled with the impossibility of correcting competitiveness differentials via the adjustment of nominal rates, have resulted into divergent dynamics in Real Effective Exchange Rates. This paper explores the role of economic fundamentals in explaining medium/long-run movements in the Real Effective Exchange Rates in the European Union over the period 1994-2012 by using heterogeneous, cointegrated panel frameworks in static and dynamic terms. In addition, the paper provides an analysis of the misalignments of the rate for each member state based on the "equilibrium" measure calculated from the permanent component of the fundamentals (BEER). The misalignments in EU28 are huge and the patterns differ significantly among groups. Therefore, despite the influence of the fundamentals is quite similar, the differences in the transfer variable (which affect the BEER) and in the actual Real Effective Exchange Rate are key. The core countries have been undervalued for almost the whole period, which entails from an important increase in competitiveness for those countries. Instead the periphery has experienced high rates, especially in Portugal. In addition, the behavior of CEECs is driven, as expected, by the transition process and influenced by the criteria to the accession to the EU. The misalignments in this case are still extremely wide and reflect these phenomena.