Exchange Rate Regimes in Central, Eastern and Southeastern Europe: A Euro Bloc and a Dollar Bloc?

March 31, 2017

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Format: Chicago

Slavi T Slavov. Exchange Rate Regimes in Central, Eastern and Southeastern Europe: A Euro Bloc and a Dollar Bloc?, (USA: International Monetary Fund, 2017) accessed October 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

There are 13 countries in Central, Eastern and Southeastern Europe (CESEE) with floating exchange rate regimes, de jure. This paper uses the framework pioneered by Frankel and Wei (1994) and extended in Frankel and Wei (2008) to show that most of them have been tracking either the euro or the US dollar in recent years. Eight countries, all of them current or aspiring EU members, track the euro. Of the five countries keying on the US dollar in various degrees, all but one belong to the Commonwealth of Independent States. The paper shows that the extent to which each country’s currency tracks the euro (or the dollar) is correlated with the structure of its external trade and finance. However, some countries appear to track the EUR or USD to an extent which appears inconsistent with inflation targeting, trade or financial integration, or the extent of business cycle synchronization. The phenomenon is particularly pronounced among the countries in the CESEE euro bloc, which may be deliberately gravitating around the euro in anticipation of eventually joining the Euro Area.

Subject: Currencies, Exchange rate arrangements, Exchange rate flexibility, Exchange rate stability, Exchange rates, Foreign exchange, Money

Keywords: Africa, British pound, Bulgarian lev, Central, CESEE country, CESEE dollar bloc, CESEE euro bloc, Currencies, De jure versus de facto, Dollar, Dollar-Euro exchange rate, Eastern and Southeastern Europe, EMP coefficient, Euro, Euro bloc, Euro weight, Exchange rate arrangements, Exchange rate flexibility, Exchange rate regimes, Exchange rate stability, Exchange rates, Fixed versus floating, Inflation rate, Standard deviation, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/083
Stock No:

WPIEA2017083
ISBN:

9781475590951
ISSN:

1018-5941

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