BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 14/2003:
The monetary approach to exchange rates in the CEECs
Jesús Crespo-Cuaresma ()
, Jarko Fidrmuc ()
and Ronald McDonald ()
Abstract: A panel data set for six Central and Eastern European
countries (the Czech Republic, Hungary, Poland, Romania, Slovakia and
Slovenia) is used to estimate the monetary exchange rate model with panel
cointegration methods, including the Pooled Mean Group estimator, the Fully
Modified Least Square estimator and the Dynamic Least Square estimator. The
monetary model is able to convincingly explain the long-run dynamics of
exchange rates in CEECs, particularly when this is supplemented by a
Balassa-Samuelson effect. We then use our long-run monetary estimates to
compute equilibrium exchange rates. Finally, we discuss the implications
for the accession of selected countries to the European Economic and
Monetary Union.
Keywords: exchange rates; monetary model; panel unit root tests; panel cointegration; EMU; (follow links to similar papers)
JEL-Codes: C33; F31; F36; (follow links to similar papers)
27 pages, November 16, 2003
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