Exchange Rate Fluctuations in the New Member States of the European Union
AbstractThis paper assesses the role of exchange rates in moderating the impact of economic disturbances in the new member states of the European Union, and finds some evidence in favour of this proposition. Exchange rates are mostly driven by real (demand) shocks, whilst output by real supply shocks. Nominal shocks, which have no long-run impact on output, are nevertheless important in explaining exchange rate fluctuations implying that less exchange rate flexibility may indeed be warranted in the run- up to the adoption of the euro. We find that while interest rate shocks generally do not explain exchange rate fluctuations, credit shocks matter in certain cases and seem to have considerable impact on exchange rate developments (e.g., for Poland). The analysis also shows that based on the average responses of exchange rates to different shocks, the adoption of narrow bands inside ERM II may be risky.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0504015.
Length: 35 pages
Date of creation: 08 Apr 2005
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Exchange rate fluctuations; transmission economies; ERM II; EMU; structural VAR;
Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
- NEP-EEC-2005-04-16 (European Economics)
- NEP-IFN-2005-04-16 (International Finance)
- NEP-MAC-2005-04-16 (Macroeconomics)
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