Effective Exchange Rates in Central and Eastern European Countries: Cyclicality and Relationship with Macroeconomic Fundamentals

Abstract

This paper examines the evolution of effective exchange rates in nine Central and Eastern European countries in terms of development trends, volatility and cyclicality. Consequently, it provides direct empirical evidence on the nature of the relationship between effective exchange rates and selected macroeconomic fundamentals, addressing a key precondition of numerous exchange rate determination models and theories that attempt to explain the role of exchange rates in the economy. The results suggest that flexible exchange rate arrangements are reflected in both nominal and real effective exchange rates having higher volatility and variability. Furthermore, the results provide mixed evidence in terms of intensity, direction and cyclicality, but show a weak correlation between exchange rates and fundamentals. Sufficiently high coefficients are found only for money supply. Consequently, using fundamentals for the determination of exchange rates and using the exchange rate to explain economic development may be of limited use for the countries analyzed.

Is Real Depreciation or More Government Deficit Expansionary? The Case of Slovenia

“…The positive and significant coefficient of real total labor cost indicates that the positive effect of a higher real labor cost or wage such as higher labor productivity or more consumption spending outweighs the negative effect of a higher real labor cost or wage during the sample period. In comparison, this paper finds that the real effective exchange rate has significant impacts on real GDP whereas Stavárek and Miglietti (2015) reveal that the correlation of real GDP and the real effective exchange rate is weak. This study shows that the real effective exchange rate may increase or reduce real GDP depending upon the time periods whereas Josheski and Eftimoski (2016) find that real appreciation raises real GDP and that real depreciation is not recommended.…”

“…Audzei and Brázdik (2015) find that the contribution of real exchange rate shocks to output in Slovenia is 12% in the short run and 15% in the long run and that the real exchange rate can be regarded as a shock-absorbing factor. Stavárek and Miglietti (2015) show that the real effective exchange rate and output in Slovenia have a weak correlation and that the role of the exchange rate in explaining the variation in economic fundamentals may be limited. Josheski and Eftimoski (2016) report that real appreciation raises output.…”

Exchange Rate Modeling under Unconventional Monetary Policy on a European Panel Sample

“…Exchange rates should reflect the change in the macroeconomic fundamentals, but floating was combined with recessive volatility in the Central and Eastern European member states (Stavárek and Miglietti, 2015), while their trade is affected by these changes despite the hedging behaviour of the main exporter multinational companies (Simakova, 2016). The spillover effects of the central bank's actions have a general impact on capital markets through transmission channels (Jammazi et al, 2017;Csiki and Kiss, 2018).…”

Cyclical Macroeconomic Effects of Exchange Rate in Poland

“…Znane są poglądy, że zmienność kursu walutowego mogła być źródłem niestabilności w sektorze realnym z powodu U-podobnej relacji między analizowanymi wskaźnikami [Gadanecz, Mehrotra 2013]. Dla krajów Europy Środkowej i Wschodniej (EŚW) brakuje wyjaśnień przyczyn większej zmienności kursu walutowego oraz jej wpływu na cykl koniunkturalny [Stavarek, Miglietti 2014]. Kurs płynny może być korzystny w warunkach konwergencji do poziomu dochodu krajów Unii Europejskiej [Becker i in.…”

“…Wahania w czasie NEER i REER dla Polski są większe w porównaniu z resztą krajów (rys. 3), co zauważono również w innych badaniach [Dumitrescu, Rosca 2015;Stavarek, Miglietti 2015] Zmienność REER jest większa w porównaniu z NEER, podobnie jak to otrzymano w innym badaniu dla danych miesięcznych dla okresu 2000-2008 [Stavarek, Miglietti 2014], ale wniosek taki nie potwierdza się dla lat pokryzysowych (tab. 1).…”