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Exchange Rates in Central Europe

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  • Louis Kuijs
  • Alain Borghijs
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    Abstract

    Central European accession countries (CECs) are currently considering when to adopt the euro. From the perspective of macroeconomic stabilization, the cost or benefit of giving up a flexible exchange rate depends on the types of asymmetric shocks hitting the economy and the ability of the exchange rate to act as a shock absorber. Economic theory suggests that flexible exchange rates are useful in absorbing asymmetric real shocks but unhelpful in the case of monetary and financial shocks. For five CECs-the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia-empirical results on the basis of a structural VAR suggest that in the CECs the exchange rate appears to have served as much or more as an unhelpful propagator of monetary and financial shocks than as a useful absorber of real shocks.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/2.

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    Length: 29
    Date of creation: 01 Jan 2004
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    Handle: RePEc:imf:imfwpa:04/2

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    Related research

    Keywords: Exchange rates; exchange rate; nominal exchange rate; real exchange rate; flexible flexible exchange rate; exchange rate flexibility; exchange rate regime; exchange rate variability; real international financial statistics; exchange rate movements; exchange rate fluctuations; nominal foreign exchange; exchange rate changes; financial liberalization; euro exchange rate; financial markets; financial market; interest rate policy; exchange rate dynamics; movements in exchange market intervention; fixed exchange rate; real exchange rate fluctuations; floating exchange rate adjustment; fixed currency areas; fixed exchange rate regime; exchange rate regimes; flexible exchange rate regime; exchange rate movement;

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    1. Clarida, R. & Gali, J., 1993. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," Discussion Papers, Columbia University, Department of Economics 1993_25, Columbia University, Department of Economics.
    2. Buiter, Willem H, 1995. "Macroeconomic Policy During a Transition to Monetary Union," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1222, C.E.P.R. Discussion Papers.
    3. Matthew B. Canzoneri & Javier Vallés & José Viñals, 1996. "Do Exchange Rate Move to Address International Macroeconomic Imbalances?," Banco de Espa�a Working Papers 9626, Banco de Espa�a.
    4. Maurice Obstfeld, 2003. "Exchange Rates and Adjustment: Perspectives from the New Open Economy Macroeconomics," International Finance, EconWPA 0303004, EconWPA.
    5. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
    6. Charles Engel, 2002. "The Responsiveness of Consumer Prices to Exchange Rates And the Implications for Exchange-Rate Policy: A Survey Of a Few Recent New Open-Economy..," NBER Working Papers 8725, National Bureau of Economic Research, Inc.
    7. 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, Elsevier, vol. 16(2), pages 233-254, April.
    8. Carlos A. Végh Gramont & Alexander W. Hoffmaister, 1995. "Disinflation and the Recession-Now-Versus-Recession-Later Hypothesis," IMF Working Papers 95/99, International Monetary Fund.
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