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The monetary approach to exchange rates in the CEECs

Author

Listed:
  • Jesús Crespo-Cuaresma

    (University of Vienna Department of Economics)

  • Jarko Fidrmuc

    (Oesterreichische Nationalbank Foreign Research Division)

  • Ronald McDonald

    (University of Strathclyde Department of Economics)

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.

Suggested Citation

  • Jesús Crespo-Cuaresma & Jarko Fidrmuc & Ronald McDonald, 2004. "The monetary approach to exchange rates in the CEECs," Macroeconomics 0401013, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0401013
    Note: Type of Document - pdf; pages: 27; figures: included
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    More about this item

    Keywords

    Exchange rates; monetary model; panel unit root tests; panel cointegration; EMU;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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