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The monetary approach to exchange rates in the CEECs

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  • Crespo-Cuaresma, Jesús

    ()
    (BOFIT)

  • Fidrmuc, Jarko

    ()
    (BOFIT)

  • McDonald, Ronald

    ()
    (BOFIT)

Abstract

A panel data set for six Central and Eastern European countries (the Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia) is used to estimate the monetary exchange rate model with panel cointegration methods, including the Pooled Mean Group estimator, the Fully Modified Least Square estimator and the Dynamic Least Square estimator. The monetary model is able to convincingly explain the long-run dynamics of exchange rates in CEECs, particularly when this is supplemented by a Balassa-Samuelson effect. We then use our long-run monetary estimates to compute equilibrium exchange rates. Finally, we discuss the implications for the accession of selected countries to the European Economic and Monetary Union.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 14/2003.

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Length: 27 pages
Date of creation: 16 Nov 2003
Date of revision:
Handle: RePEc:hhs:bofitp:2003_014

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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Keywords: exchange rates; monetary model; panel unit root tests; panel cointegration; EMU;

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