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The Shock-Absorbing Capacity of the Flexible Exchange Rate in Poland

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  • Agnieszka Stazka-Gawrysiak

    () (Narodowy Bank Polski, Economic Institute, and Warsaw School of Economics)

Abstract

In recent years, numerous studies have analyzed the sources of exchange rate fluctuations in the context of the shock-absorbing capacity of flexible exchange rates. This paper analyzes, within a Structural Vector Autoregressive (SVAR) framework, the role of the flexible exchange rate in Poland over the past decade. Our contribution to the existing literature is twofold: First, we expand the prevailing SVAR models to include a financial market shock, defined as a stochastic change in a country’s risk premium. This appears to be highly relevant in the face of the ongoing global financial crisis. Second, we analyze to what extent the crisis has affected the stabilizing capacity of the z?oty/euro exchange rate. We find that the exchange rate has been a shock-absorbing rather than a shock-propagating instrument. We also demonstrate that – in line with our expectations – the contribution of financial market disturbances to exchange rate volatility has increased during the current global crisis.

Suggested Citation

  • Agnieszka Stazka-Gawrysiak, 2009. "The Shock-Absorbing Capacity of the Flexible Exchange Rate in Poland," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 54-70.
  • Handle: RePEc:onb:oenbfi:y:2009:i:4:b:1
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    Keywords

    flexible exchange rate; euro area enlargement; financial crisis; SVAR;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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