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I researched several literatures related with Balassa-Samuelson effect and according to literatures, as Balassa samuelson effect increases, real exchange rate appreciates. However according to the literature (The real exchange rate of euro and Greek economic growth by Gregory T. Papanikos) , as BS effect increases 10%, the the real exchange rate falls by 4.8%. I could not find any reasonable explanation for this argument. Why this happens?

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    $\begingroup$ Could you specify the time-period and the context of that example? I haven't read the book and it would be easier to answer your question if I had that information :) $\endgroup$ – mn2609 Jul 29 at 14:56
  • $\begingroup$ Time period includes between 1961-2014. The REER (E) is the value of the nominal exchange rate multiplied by the purchasing power conversion factors of Greek drachma per US dollar that the PPP ratio is the conversion factors of units of Greek drachma per US dollar. Values of E greater (less) than one imply that the Greek drachma is more depreciated (more appreciated) than indicated by PPP , but this measure of valuation does not take into consideration of BS effect and the literature concludes that when Gdp per capita in Greece increases 10%, the real exchange rate falls 4.8 %. $\endgroup$ – Josh Jul 29 at 21:26

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