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Drivers of Exchange Rate Dynamics in Selected CIS Countries: Evidence from a Factor-Augmented Vector Autoregressive (FAVAR) Analysis

Listed author(s):
  • Christian Dreger
  • Jarko Fidrmuc

We investigate the likely sources of exchange rate dynamics in selected member countries of the Commonwealth of Independent States (CIS; Russia, Kazakhstan, Ukraine, Kyrgyzstan, Azerbaijan, and Moldova) over the past decade (1999-2010). Evidence is based on country VARs augmented by a regional common-factor structure (FAVAR model). The models include nominal exchange rates, the common factor of exchange rates in the CIS countries, and international drivers such as global trade, share prices, and oil price. Global, regional, and idiosyncratic shocks are identified in a standard Cholesky fashion. Their relevance for exchange rates is explored by a decomposition of the variance of forecast errors. The impact of global shocks on the development of exchange rates has increased, particularly if financial shocks are considered. Because of the recent global financial crisis, regional shocks have become more important at the expense of global shocks.

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File URL: http://hdl.handle.net/10.2753/REE1540-496X470403
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Article provided by Taylor & Francis Journals in its journal Emerging Markets Finance and Trade.

Volume (Year): 47 (2011)
Issue (Month): 4 (July)
Pages: 49-58

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Handle: RePEc:taf:emfitr:v:47:y:2011:i:4:p:49-58
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  1. Ronald MacDonald & Cezary Wojcik, 2008. "Productivity, Demand, and Regulated Price Effects Revisited: An Analysis of the Real Bilateral Exchange Rates of Four New EU Member States," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(3), pages 48-65, May.
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  14. Katerina Kalcheva & Nienke Oomes, 2007. "Diagnosing Dutch Disease; Does Russia Have the Symptoms?," IMF Working Papers 07/102, International Monetary Fund.
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