Exchange Rates in Central Europe: A Blessing or a Curse?

January 1, 2004

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Format: Chicago

Louis Kuijs, and Alain Borghijs. Exchange Rates in Central Europe: A Blessing or a Curse?, (USA: International Monetary Fund, 2004) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Central European accession countries (CECs) are currently considering when to adopt the euro. From the perspective of macroeconomic stabilization, the cost or benefit of giving up a flexible exchange rate depends on the types of asymmetric shocks hitting the economy and the ability of the exchange rate to act as a shock absorber. Economic theory suggests that flexible exchange rates are useful in absorbing asymmetric real shocks but unhelpful in the case of monetary and financial shocks. For five CECs-the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia-empirical results on the basis of a structural VAR suggest that in the CECs the exchange rate appears to have served as much or more as an unhelpful propagator of monetary and financial shocks than as a useful absorber of real shocks.

Subject: Exchange rate adjustments, Exchange rate arrangements, Exchange rate flexibility, Exchange rates, Foreign exchange, Real exchange rates

Keywords: Accession, CECs, Demand and supply shock, Europe, Exchange rate, Exchange rate adjustments, Exchange rate arrangements, Exchange rate flexibility, Exchange rate movement, Exchange rate variability, Exchange rates, IS shock, Labor market shock, LM shock, Neutral shock, Nominal exchange rate, Nominal Exchange rate., Real exchange rates, Shock-absorbing capability, Structural shock, Structural VAR, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/002
Stock No:

WPIEA0022004
ISBN:

9781451841794
ISSN:

1018-5941

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