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Following the yellow brick road? The Euro, the Czech Republic, Hungary and Poland

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Author Info
Jesús Rodríguez López () (Department of Economics, Universidad Pablo de Olavide)
José Luis Torres Chacón () (Departamento de Teoría e Historia Económica, Universidad de Málaga)

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Abstract

This paper uses a combination of VAR and bootstrapping techniques to analyze whether the exchange rates of some New Member States of the EU have been used as output stabilizers (those of the Czech Republic, Hungary and Poland), during 1993-2004. This question is important because it provides a prior evaluation on the costs and benefits involved in entering the European Monetary Union (EMU). Joining the EMU is not optional for these countries but mandatory, although there is no definite deadline. Therefore, if the exchange rate works as a shock absorber, monetary independence could be retained for a longer period. Our main finding is that the exchange rate could be a stabilizing tool in Poland and the Czech Republic, although in Hungary it appears to act as a propagator of shocks. In addition, in these three countries, demand and monetary shocks account for most of the variability in both nominal and real exchange rates.

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File URL: http://www.upo.es/serv/bib/wps/econ0612.pdf
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Publisher Info
Paper provided by Universidad Pablo de Olavide, Departamento de Economía in its series Working Papers with number 06.12.

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Length: 26 pages
Date of creation: Apr 2006
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Handle: RePEc:pab:wpaper:06.12

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Related research
Keywords: EMU exchange rate Structural VAR stationary bootstraps.

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Find related papers by JEL classification:
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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