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Following the Yellow Brick Road to the Euro?: Czech Republic, Hungary, and Poland

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  • Jesús Rodríguez López
  • José Luis Torres Chacón

Abstract

This paper uses a combination of structural vector autoregression and bootstrapping techniques to analyze whether the exchange rates of three new EU member statesâCzech Republic, Hungary, and Polandâhave been used as output stabilizers during the period 1995-2005. The question provides a prior evaluation of the costs and benefits of entering the European Monetary Union (EMU). Joining the EMU is mandatory for these countries, but there is no definite deadline. Therefore, if the exchange rate works as a shock absorber, monetary independence could be retained for a longer period of time. We find that the exchange rate could be a stabilizing tool in Poland, but in Czech Republic and Hungary, it appears to propagate shocks. In addition, in Czech Republic and Hungary, demand and monetary shocks account for most of the variability in both nominal and real exchange rates.

Suggested Citation

  • Jesús Rodríguez López & José Luis Torres Chacón, 2007. "Following the Yellow Brick Road to the Euro?: Czech Republic, Hungary, and Poland," Eastern European Economics, Taylor & Francis Journals, vol. 45(6), pages 46-79, November.
    • Handle: RePEc:mes:eaeuec:v:45:y:2007:i:6:p:46-79
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    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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