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The monetary approach to exchange rates in the CEECs

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  • 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.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0401013.

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Length: 27 pages
Date of creation: 30 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0401013

Note: Type of Document - pdf; pages: 27; figures: included
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Web page: http://128.118.178.162

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Keywords: Exchange rates; monetary model; panel unit root tests; panel cointegration; EMU;

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