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How would a fixed-exchange-rate regime fit the transition economies?. The cases of the Czech Republic, Hungary and Poland

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  • Jérôme Creel
  • Sandrine Levasseur

Abstract

This paper is devoted to an extension of Dibooglu and Kutan?s work [Journal of Comparative Economics, June 2001], in two directions. First, a bivariate VAR, including the real effective exchange rate (REER) and inflation, is tested not only for Hungary and Poland, but also for the Czech Republic, over the 1993:1-2002:12 time-period, which excludes the early transition years. Second, industrial production and the nominal interest rate are incorporated in a multivariate VAR to investigate the effects of policy shocks on the exchange rate. This helps to illustrate the possible gains and costs of the present exchange-rate regime in these CEECs and to draw some conclusions on the likely economic outcomes of adopting a firmly fixed exchange-rate regime like ERM II. Three main conclusions emerge: (1) contrary to Dibooglu and Kutan (2001), results testify to a high degree of flexibility in the CPI; (2) in contrast to the Czech Republic and Hungary, nominal shocks have a strong effect on the REER in Poland and, more specifically, there is evidence that the fluctuations in the nominal exchange rate explain a large part of REER fluctuations in this latter country; (3) in Poland, the policy mix seems more credible than in the other two countries. We infer from these conclusions that moving to the ERM II and the EU will be of less benefit to Poland than to the Czech Republic and Hungary. JEL classifications: C50, E63, F31, P22

Suggested Citation

  • Jérôme Creel & Sandrine Levasseur, 2004. "How would a fixed-exchange-rate regime fit the transition economies?. The cases of the Czech Republic, Hungary and Poland," Revue de l'OFCE, Presses de Sciences-Po, vol. 91(5), pages 83-120.
    • Handle: RePEc:cai:reofsp:reof_075_0083
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    Cited by:

    1. Tayfur Bayat & Saban Nazlioglu & Selim Kayhan, 2015. "Exchange Rate and Oil Price Interactions in Transition Economies: Czech Republic, Hungary and Poland," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(3), pages 267-285, June.
    2. Yu Hsing, 2005. "Short-Term Output Fluctuations in Poland: An Application of the Is-Mp-As Model," The American Economist, Sage Publications, vol. 49(2), pages 44-50, October.
    3. repec:spo:wpecon:info:hdl:2441/3361 is not listed on IDEAS
    4. Sandrine Levasseur, 2004. "Why not euroisation?," Revue de l'OFCE, Presses de Sciences-Po, vol. 91(5), pages 121-156.
    5. Jérôme Creel* & Sandrine Levasseur, 2007. "Monetary Policy Transmission Mechanisms in the CEECs: How Important are the Differences with the Euro Area?," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(1), pages 30-59, February.
    6. Svitlana Maksymenko, 2015. "The Cost of Euro Adoption in Poland," Working Paper 5779, Department of Economics, University of Pittsburgh.
    7. repec:hal:wpspec:info:hdl:2441/3361 is not listed on IDEAS
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    12. Muhammad Naveed Tahir, 2011. "Inflation Targeting, Exchange Rate and Financial Globalization," Working Papers 1130, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
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    More about this item

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices

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