Causal relations between nominal exchange rates and monetary fundamentals in Central and Eastern European countries

Abstract

The purpose of this paper is to investigate the causal relations between nominal exchange rates and monetary fundamentals. The analysis is conducted using panel quarterly data from the period 2001-12 for Central and Eastern European countries (including Turkey) with relatively flexible exchange rate regimes. The paper reconnects the empirical literature on exchange rates in Central and Eastern European countries with the most recent findings on exchange rate determination in advanced economies. K oyna's approach, which accounts for linkages between countries, is used in the study. The main findings indicate the existence of causal relations running from both nominal exchange rates to monetary fundamentals and in the opposite direction as well as the existence of a relatively strong link between exchange rates and differentials in the relative price of non-tradables.JEL classifications: C33, E44, F31, F41.

Fundamentales macroeconómicos del tipo de cambio. Evidencia de cointegración

“…Finalmente, el modelo C incluye tanto un cambio de nivel como cambio en la tendencia, como se representa en la ecuación (13).…”

“…Este resultado es compatible con otras investigaciones internacionales, como la reportada por Civcir (2003) que, con datos mensuales para Turquía, indica un efecto de largo plazo de p t dTN en el tipo de cambio nominal de la lira turca, con respecto al dólar estadounidense. Por su parte, Crespo et al (2005) utilizaron datos panel para seis países europeos 13 con lo cual muestran evidencia de cointegración entre los distintos tipos de cambio y el diferencial en la relación de precios transable/no transables.…”

Money Demand Features in CEE Countries

“…However, both measures of uncertainty have a greater impact in the short-run than in the long-run in most of the countries, the results confirming that uncertainty doesn't exert adverse long-run effects on monetary equilibrium. In a recent study, Dabrowski et al [6] studied the causal relationship between nominal exchange rates and monetary fundamentals in CEE countries, and found strong evidence of causality running from monetary fundamentals to the exchange rate in some countries. This proves that the stock of money can provide useful information about the evolution of DOI: 10.12948/issn14531305/20.4.2016.08 the exchange rates in the future.…”

Asymmetric causality between exchange rate and interest rate differentials: a test of international capital mobility

“…This paper differs from the prior studies in the following ways: unlike the recent study by Hacker, Karlsson and Månsson (2014), who employ a wavelets analysis and vector autoregressive (VAR) impulse response causality test in the context of Sweden, Choi and Park (2008), who study the causality in four Asian countries using VAR, and Dąbrowski, Papież and Śmiech (2015), who use country-specific bootstrap critical values and Wald test on panel Granger causality based on seemingly unrelated regression (SUR) in Central and Eastern European countries, the present study applies the bootstrap asymmetric causality method to distinguish between the existence of causality in good (exchange rate appreciation) and bad (exchange rate depreciation) times. The employed procedures work better when normality assumption is violated and in the presence of ARCH effect.…”