Are devaluations contractionary in emerging economies of Eastern Europe?

In most developing countries currency depreciation is said to be contractionary. This is because depreciation reduces the aggregate supply more than it increases the aggregate demand. However, emerging European economies have received no attention so far, mostly due to unavailability of data. Now that enough time-series data are available, we try to fill the gap by investigating the impact of real depreciation in effective exchange rates of Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Russia, and Slovak Republic on their domestic output. We find that in the short run real depreciation is expansionary in Belarus, Latvia, Poland, and Slovak Republic; contractionary in Czech Republic, Estonia, Hungary, and Russia; and has no effect in Lithuania. In almost none of the countries, the short-run effects last into the long run. © Springer Science+Business Media, LLC. 2008.