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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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  1. Maximo Camacho & Gabriel Perez-Quiros, 2004. "Are European business cycles close enough to be just one?," Computing in Economics and Finance 2004 16, Society for Computational Economics.
  2. Maximo Camacho, 2004. "Vector smooth transition regression models for US GDP and the composite index of leading indicators," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(3), pages 173-196.
  3. Fidrmuc, Jan, 2004. "Migration and regional adjustment to asymmetric shocks in transition economies," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 230-247, June.
  4. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
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  7. Korhonen, Iikka, 2001. "Some empirical tests on the integration of economic activity between the Euro area and the accession countries," BOFIT Discussion Papers 9/2001, Bank of Finland, Institute for Economies in Transition.
  8. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  9. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 257-275, June.
  10. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
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  12. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
  13. Louis Kuijs & Alain Borghijs, 2004. "Exchange Rates in Central Europe: a Blessing or a Curse?," IMF Working Papers 04/2, International Monetary Fund.
  14. Garett Jones & Ali M Kutan, 2004. "Exchange Rate Management Strategies in the Accession Countries: The Case of Hungary," Comparative Economic Studies, Palgrave Macmillan, vol. 46(1), pages 23-44, March.
  15. Camacho, Maximo & Perez-Quiros, Gabriel & Saiz, Lorena, 2008. "Do European business cycles look like one?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2165-2190, July.
  16. Maximo Camacho & Gabriel Perez-Quiros & Lorena Saiz & Universidad de Murcia, 2006. "Do european business cycles look like one $\_?$," Computing in Economics and Finance 2006 175, Society for Computational Economics.
  17. Salvatore, Dominick, 2004. "Restructuring and Euroization in Accession Countries," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 889-902, October.
  18. Jakub Borowski, 2004. "Costs and Benefits of Poland's EMU Accession: a Tentative Assessment," Comparative Economic Studies, Palgrave Macmillan, vol. 46(1), pages 127-145, March.
  19. Matthew B. Canzoneri & Javier Vallés & José Viñals, 1996. "Do Exchange Rate Move to Address International Macroeconomic Imbalances?," Banco de España Working Papers 9626, Banco de España.
  20. Hilde Bjørnland, 2004. "The Role of the Exchange Rate as a Shock Absorber in a Small Open Economy," Open Economies Review, Springer, vol. 15(1), pages 23-43, January.
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