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Exchange Rates in Central Europe: A Blessing or a Curse?
Author:
Louis Kuijs null

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Alain Borghijs null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 002
Language:
English
Publication Date:
01 Jan 2004
DOI:
https://doi.org/10.5089/9781451841794.001
ISBN:
9781451841794
ISSN:
1018-5941
Pages:
29
Keywords:
WP; exchange rate; nominal exchange rate; nominal Exchange rate.; Exchange rates; structural VAR; accession; CECs; LM shock; IS shock; demand and supply shock; exchange rate movement; shock-absorbing capability; exchange rate variability; neutral shock; labor market shock; structural shock; Real exchange rates; Exchange rate flexibility; Exchange rate arrangements; Exchange rate adjustments; Europe
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund