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Sources Of Exchange Rate Volatility In The European Transition Economies. Effects Of Economic Crisis Revealed

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  • K. Rajmund MIRDALA

Abstract

Negative macroeconomic performance issues represent one of the key effects of crisis period. Due to many economic crisis related side effects countries became more vulnerable to various types of endogenous and exogenous shocks. Exchange rates of the European transition economies became much more volatile as a result of increased uncertainty on the financial markets as well as changed behaviour of structural shocks affecting exchange rates path during the crisis period. As a result we expect a contribution of the structural shocks to the exchange rates path has changed. In the paper we analyse sources of exchange rate fluctuations in the European transition economies. We estimate the contribution of nominal, supply and demand shocks to NEER and REER variability implementing SVAR methodology. Long run restrictions are applied to unrestricted VAR model to identify structural shocks. Variance decomposition and impulse-response functions are computed for each individual country for the period 2000-2007 and 2000-2011. Comparison of results for both periods is crucial for identification of the role of economic crisis in determining exchange rate volatility in the European transition economies.

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Bibliographic Info

Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

Volume (Year): 7 (2012)
Issue (Month): 3(21)/ Fall 2012 ()
Pages: 270-282

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Handle: RePEc:ush:jaessh:v:7:y:2012:i:3(21)_fall2012:p:270

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Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14
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Related research

Keywords: exchange rates; exogenous structural shocks; structural vector autoregression; variance decomposition; impulse-response function;

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References

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  1. Frait , Jan & Komárek, Luboš, 2001. "REAL Exchange rate trends in transitional countries," The Warwick Economics Research Paper Series (TWERPS) 596, University of Warwick, Department of Economics.
  2. Fidrmuc, Jarko & Korhonen, Iikka, 2003. "Similarity of supply and demand shocks between the euro area and the CEECs," Economic Systems, Elsevier, vol. 27(3), pages 313-334, September.
  3. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  4. Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August.
  5. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
  6. Ibrahim Chowdhury, 2004. "Sources of exchange rate fluctuations: empirical evidence from six emerging market countries," Applied Financial Economics, Taylor & Francis Journals, vol. 14(10), pages 697-705.
  7. Ali M. Kutan & Selahattin Dibooglu, 1998. "Sources of real and nominal exchange rate fluctuations in transition economies," Working Papers 1998-022, Federal Reserve Bank of St. Louis.
  8. Nabil Ben Arfa, 2009. "Analysis of Shocks Affecting Europe: EMU and some Central and Eastern Acceding Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(1), pages 21-38, March.
  9. Fidrmuc, Jarko & Horváth, Roman, 2008. "Volatility of exchange rates in selected new EU members: Evidence from daily data," Economic Systems, Elsevier, vol. 32(1), pages 103-118, March.
  10. Agnieszka Stazka, 2006. "Sources of Real Exchange Rate Fluctuations in Central and Eastern Europe – Temporary or Permanent?," CESifo Working Paper Series 1876, CESifo Group Munich.
  11. Robert Kollmann, 2001. "The exchange rate in a dynamic-optimizing business cycle model with nominal rigidities: a quantitative investigation," ULB Institutional Repository 2013/7630, ULB -- Universite Libre de Bruxelles.
  12. Mirdala, Rajmund, 2012. "Macroeconomic Aspects of Real Exchange Rate Volatility in the Central European Countries," MPRA Paper 40910, University Library of Munich, Germany.
  13. Enders, Walter & Lee, Bong-Soo, 1997. "Accounting for real and nominal exchange rate movements in the post-Bretton Woods period," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 233-254, April.
  14. repec:ebl:ecbull:v:6:y:2007:i:32:p:1-10 is not listed on IDEAS
  15. Shigeyuki Hamori & Naoko Hamori, 2007. "Sources of Real and Nominal Exchange Rate Movements for the Euro," Economics Bulletin, AccessEcon, vol. 6(32), pages 1-10.
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Cited by:
  1. Rajmund Mirdala, 2014. "Exchange Rate Pass-Through to Domestic Prices under Different Exchange Rate Regimes," William Davidson Institute Working Papers Series wp1070, William Davidson Institute at the University of Michigan.
  2. Mirdala, Rajmund, 2012. "Interest Rates Determination and Crisis Puzzle (Empirical Evidence from the European Transition Economies)," MPRA Paper 43756, University Library of Munich, Germany.

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