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

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  • Jesús Rodríguez López

    ()
    (Department of Economics, Universidad Pablo de Olavide)

  • José Luis Torres Chacón

    ()
    (Departamento de Teoría e Historia Económica, Universidad de Málaga)

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
File Function: First version, 2006
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 06.12.

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

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Keywords: EMU; exchange rate; Structural VAR; stationary bootstraps.;

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