International Economics

<< N°162

  N°162  
Issue Q2 2020  
Insulating property of the flexible exchange rate regime: A case of Central and Eastern European countries  
Marek A. D?browski
Justyna Wróblewska
 
We examine the insulating property of flexible exchange rates in CEE economies considering thatthey have adopted different regimes. We estimate a set of Bayesian structural VAR models withcommon serial correlations using data spanning 1998q1-2015q4. We derive the long-term iden-tifying restrictions from a macroeconomic model. We find that irrespective of the exchange rateregime, real shocks primarily drive output. However, its reactions to these shocks are substan-tially stronger under less flexible regimes, whereas the responses to nominal shocks are similar.Hence, the insulating property of flexible regimes can reduce the costs from economic shocks.
Abstract

   
Open economy macroeconomics ; Exchange rate regimes ; Real and nominal shocks ; Bayesian structural VAR ; Common serial correlation ; Keywords
F33 ; C11 ; F41 ; E44 ; JEL classification
Order form