Convergence of exchange rates in Central and Eastern Europe

The author analyzes disparities among real exchange rates across Central an d Eastern European (CEE) countries between 1991 and 1997. To this end, he e xamines whether the differentials of exchange rate changes converge or dive rge over time. To date, ten CEE countries have formally applied for full me mbership in the European Union. This paper shows that in general there is a n exchange rate convergence among these countries; however the degree of co nvergence varies substantially among the groups of countries. When comparin g two groups of countries seeking accession, the author found that the firs t-round countries (the Czech Republic, Hungary, Poland, Slovenia, and Eston ia) are, in terms of exchange rate conversion, better prepared for accessio n to the EU than are the second-round countries, The groups' performance va ried according to their exchange rate regime: those countries with a floati ng regime are fastest in their convergence, followed by those with a fixed regime and those using a pegged exchange rate.