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Causal relations between nominal exchange rates and monetary fundamentals in Central and Eastern European countries

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  • Marek A. Dąbrowski
  • Monika Papież
  • Sławomir Śmiech

Abstract

type="main" xml:id="ecot12055-abs-0001"> The purpose of this paper is to investigate the causal relations between nominal exchange rates and monetary fundamentals. The analysis is conducted using panel quarterly data from the period 2001–12 for Central and Eastern European countries (including Turkey) with relatively flexible exchange rate regimes. The paper reconnects the empirical literature on exchange rates in Central and Eastern European countries with the most recent findings on exchange rate determination in advanced economies. Kóyna's approach, which accounts for linkages between countries, is used in the study. The main findings indicate the existence of causal relations running from both nominal exchange rates to monetary fundamentals and in the opposite direction as well as the existence of a relatively strong link between exchange rates and differentials in the relative price of non-tradables.

Suggested Citation

  • Marek A. Dąbrowski & Monika Papież & Sławomir Śmiech, 2015. "Causal relations between nominal exchange rates and monetary fundamentals in Central and Eastern European countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(1), pages 45-73, January.
    • Handle: RePEc:bla:etrans:v:23:y:2015:i:1:p:45-73
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    File URL: http://hdl.handle.net/10.1111/ecot.2015.23.issue-1
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    Cited by:

    1. Works, Richard Floyd, 2016. "Econometric modeling of exchange rate determinants by market classification: An empirical analysis of Japan and South Korea using the sticky-price monetary theory," MPRA Paper 76382, University Library of Munich, Germany.

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