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Exchange rates and monetary fundamentals in CEE countries: Evidence from a panel approach

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  • Dąbrowski, Marek A.
  • Papież, Monika
  • Śmiech, Sławomir

Abstract

This paper examines whether the monetary model is a reasonable framework for exchange rate movements in Central and Eastern European countries. We apply the methodology for non-stationary panels, which allows for cross-sectional dependence. We also choose the timespan of data free of high inflation periods and focus on countries with relatively flexible exchange rates. Using quarterly panel data, 2001:4–2012:4, we find evidence of cointegration between exchange rates and macroeconomic fundamentals. Granger causality tests reveal that exchange rates have reverted to the long-run relation implied by the monetary model. The results obtained are not driven by the recent crisis.

Suggested Citation

  • Dąbrowski, Marek A. & Papież, Monika & Śmiech, Sławomir, 2014. "Exchange rates and monetary fundamentals in CEE countries: Evidence from a panel approach," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 148-159.
    • Handle: RePEc:eee:jmacro:v:41:y:2014:i:c:p:148-159
    DOI: 10.1016/j.jmacro.2014.05.005
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    7. Muhammad Arshad Khan & Saima Nawaz, 2018. "Does Pak-Rupee Exchange Rate Respond to Monetary Fundamentals? A Structural Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(2), pages 175-202.
    8. Piotr Dybka, 2020. "One model or many? Exchange rates determinants and their predictive capabilities," KAE Working Papers 2020-053, Warsaw School of Economics, Collegium of Economic Analysis.
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    More about this item

    Keywords

    Monetary exchange rate model; Central and Eastern European countries; Cross-sectional dependence; Panel cointegration; Granger causality;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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