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Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary

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  • Dibooglu, Selahattin
  • Kutan, Ali M.

Abstract

This paper examines Brada‘s (1998) conjecture about the path of real exchange rates in two successful transition economies, Hungary and Poland. He argues that, as a result of the very diverse fiscal and monetary policies to be found among these economies, real exchange rates in some economies should follow a path that mirrors mainly the effect of real shocks and others a path reflecting the monetary shocks. To test this hypothesis, we use a popular structural VAR model and, assuming long-run neutrality of nominal shocks, we decompose real exchange rate and price movements into those attributable to real and nominal shocks. Using monthly data from 1990 to 1999 for Hungary and Poland, we find that nominal shocks had a major influence in explaining real exchange rate movements in Poland, while real shocks had a larger influence on real exchange rate movements in Hungary.
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  • 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.
    • Handle: RePEc:eee:jcecon:v:29:y:2001:i:2:p:257-275
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    1. Brada, Josef C. & King, Arthur E. & Kutan, Ali M., 2000. "Inflation bias and productivity shocks in transition economies: The case of the Czech Republic," ZEI Working Papers B 02-2000, University of Bonn, ZEI - Center for European Integration Studies.
    2. Brada, Josef C. & Kutan, Ali M., 1999. "The end of moderate inflation in three transition economies?," ZEI Working Papers B 21-1999, University of Bonn, ZEI - Center for European Integration Studies.
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    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F3 - International Economics - - International Finance
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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