tag:blogger.com,1999:blog-3558944449806472503.post1931307058462541369..comments2023-01-03T23:17:15.821-08:00Comments on Political Economy in Public: Hungary and the importance of an independent currencyDavid Woodruffhttp://www.blogger.com/profile/05324493442439870360noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-3558944449806472503.post-16027798699456720012014-06-13T15:51:09.420-07:002014-06-13T15:51:09.420-07:00Hi Waltraud--I agree with what you say about 2012-...Hi Waltraud--I agree with what you say about 2012-2013. And I agree that all these countries did see relative price adjustment. In fact, if you pick quarter 2 of 2012, they'd all had virtually identical changes in the real exchange rate since 2008Q1 - but all of Hungary's came from changes in the nominal exchange rate rather than sinking domestic labour costs. And at this point, before the bulk of Hungary's real appreciation, Hungary had paid much less of an employment price. (I've redrawn the chart above to show changes in employment to emphasise this point.) Given this, I think that exchange rate flexibility was a useful policy instrument for Hungary. In table form: <br />2012Q2 RER Change in employment<br />Greece 88.2 -10.4%<br />Spain 89.5 -9.4%<br />Hungary 90.0 -0.5%<br />(Hungary's RER if there had been no devaluation would have been 102.1) David Woodruffhttps://www.blogger.com/profile/05324493442439870360noreply@blogger.comtag:blogger.com,1999:blog-3558944449806472503.post-65464172697836074492014-06-13T11:28:49.055-07:002014-06-13T11:28:49.055-07:00Hi David,
Thanks for your comment on our paper. Bu...Hi David,<br />Thanks for your comment on our paper. But taking your graph at face value, one would have to conclude that actually real appreciation, not nominal devaluation, is good for employment. That is, a higher inflation rate stimulates domestic demand and employment. That's entirely possible but does not contradict our point about the fact that nominal devaluation is not key for adjustment (and real devaluation which all these countries arguably needed).<br />Best,<br />Waltraud. Waltraudhttps://www.blogger.com/profile/04870222311935533625noreply@blogger.com