Exchange Rates in Central Europe: A Blessing or a Curse?
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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.
Series:
Working Paper No. 2004/002
Subject:
Exchange rate adjustments Exchange rate arrangements Exchange rate flexibility Exchange rates Foreign exchange Real exchange rates
English
Publication Date:
January 1, 2004
ISBN/ISSN:
9781451841794/1018-5941
Stock No:
WPIEA0022004
Pages:
29
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