On the evolution of competitiveness in Central and Eastern Europe: Is it broken?

Abstract

In this article, we analyse the evolution of the real effective exchange rate (REER) as a measure of competitiveness for a group of Central and Eastern European countries. To do this, we employ unit‐root tests with breaks and estimate the equations with structural breaks. Our results show that even though the REERs have become flatter, which means less competitiveness is lost against main trading partners, they have also become less mean‐reverting, suggesting that shocks now tend to have longer effects.