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Crisis Resistance Versus Monetary Regime: A Polish–Slovak Counterfactual Exercise

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Author Info

  • Andrzej Torój

    ()
    (Warsaw School of Economics)

  • Karolina Konopczak

    ()
    (Warsaw School of Economics)

Abstract

In the public debate, it is argued that Poland avoided a massive drop in output during the 2008/2009 economic crisis in part thanks to substantial nominal zloty’s depreciation against the euro. The Polish case is often contrasted with Slovakia that adopted the euro in January 2009 and, since the Ecofin Council decision in summer 2008, exhibited virtually no nominal exchange rate volatility while facing deep losses in output. In this paper we attempt to validate this contrast by reversing the roles, i.e. checking if Poland really would have faced the same drop – and Slovakia would have remained relatively resilient – if it had been Poland, not Slovakia, that adopted the euro at that point. Our counterfactual simulations based on a New Keynesian DSGE model indicate that, indeed, the Polish tradable output could have been 10-15 percent lower than actually observed in 2009, while the Slovak one – approximately 20 percent higher. This asymmetry results mainly from structural differences between the two economies, such as size, openness, share of nontradable sector and foreign trade elasticities. The difference of this size would have been short-lived (3-4 quarters), and the difference of the nontradable output would have been of much lower magnitude.

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Bibliographic Info

Article provided by CEJEME in its journal Central European Journal of Economic Modelling and Econometrics.

Volume (Year): 4 (2012)
Issue (Month): 1 (March)
Pages: 1-22

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Handle: RePEc:psc:journl:v:4:y:2012:i:1:p:1-22

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Web page: http://cejeme.org/

Related research

Keywords: euro adoption; Poland; Slovakia; DSGE; counterfactual simulations;

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  1. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Can sticky price models generate volatile and persistent real exchange rates?," Staff Report 223, Federal Reserve Bank of Minneapolis.
  2. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  3. Andrew Levin & Christopher J. Erceg & Dale W. Henderson, 1999. "Optimal Monetary Policy with Staggered Wage and Price Contracts," Computing in Economics and Finance 1999 1151, Society for Computational Economics.
  4. Kolasa, Marcin, 2009. "Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model," Economic Modelling, Elsevier, vol. 26(6), pages 1245-1269, November.
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  7. Michal Brzoza-Brzezina & Krzysztof Makarski & Grzegorz Wesolowski, 2013. "Would it have paid to be in the eurozone?," Working Papers 70, Department of Applied Econometrics, Warsaw School of Economics.
  8. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
  9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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