Exchange rate as a shock absorber in Poland and Slovakia: Evidence from Bayesian SVAR models with common serial correlation

Dąbrowski, Marek A.; Wróblewska, Justyna

doi:10.1016/j.econmod.2016.05.013

Cited by 11 publications

(11 citation statements)

References 17 publications

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“…In turn, Stążka-Gawrysiak (2009) found that the flexible exchange rate of the Polish zloty had been 'a shock-absorbing rather than a shock-propagating instrument.' 3 In line with her study are the results obtained by Dąbrowski and Wróblewska (2016) who found that 'the hypothesis that the flexible exchange rate is not a shock absorber rests on the imperfect identification of shocks' and demonstrated that the floating exchange rate of the Polish zloty better insulated a real economy against real shocks than the relatively fixed rate of the Slovak koruna.…”

Section: Introductionsupporting

confidence: 62%

“…The important question that arises here is whether the increased exchange rate variability moderates output reactions to shocks hitting an economy. The relevant tool, which we think -following Dąbrowski and Wróblewska (2016) -is appropriate to answer that question, are impulse response functions of the relative output to structural shocks. In Figure 2 the mean reaction of output to two real shocks is illustrated with solid lines and (the analogue of) the confidence interval (the posterior mean plus/minus posterior standard deviation) is depicted with broken lines.…”

Section: Resultsmentioning

confidence: 99%

“…To complete the definition of the considered Bayesian VAR(k) model we have to impose prior distributions for the parameters. We have decided to employ the same Normal-inverted Wishart prior structure as in Dąbrowski and Wróblewska (2016):…”

Section: Empirical Strategymentioning

confidence: 99%

“…Specifically, for any non-singular matrix M of order n − s products δγ ′ and δM M −1 γ ′ are equivalent, so we have the problem with identification of matrix parameters γ and δ. To overcome this ambiguity we have decided to adopt the method proposed by Koop et al (2010) for the VEC models, also employed in Dąbrowski and Wróblewska (2016).…”

Section: Empirical Strategymentioning

confidence: 99%

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Insulating property of the flexible exchange rate regime: A case of Central and Eastern European countries

Dąbrowski

Wróblewska

2020

International Economics

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We examine the insulating property of flexible exchange rate in CEE economies using the fact that they have adopted different regimes. A set of Bayesian structural VAR models with common serial correlations is estimated on data spanning 1998q1-2015q4. The long-term identifying restrictions are derived from a macroeconomic model. We find that irrespective of the exchange rate regime output is driven mainly by real shocks. Its reactions to these shocks, however, are substantially 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.

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Section: Introductionsupporting

confidence: 62%

Section: Resultsmentioning

confidence: 99%

Section: Empirical Strategymentioning

confidence: 99%

Section: Empirical Strategymentioning

confidence: 99%

See 2 more Smart Citations

Insulating property of the flexible exchange rate regime: A case of Central and Eastern European countries

Dąbrowski

Wróblewska

2020

International Economics

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“…By real interest rate variable, we present the country risk. We calculated the real interest rate in as same manner as it is presented in Dabrowski and Wr oblewska (2015). Real interest rate is calculated as a difference between 3-month money market nominal interest rate and actual inflation.…”

Section: Datamentioning

confidence: 99%

The impact of the exchange rate on the foreign trade imbalance during the economic crisis in the new EU member states and the Western Balkan countries

Rajković

Bjelić

Jaćimović

et al. 2020

Economic Research-Ekonomska Istraživanja

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This paper examines the relationship between the real exchange rate and the foreign trade imbalance in both the Western Balkan (WB) and Central and Eastern European (CEE) countries. During the most recent global economic crisis, examining the impact of the exchange rate on the balance of trade took on a particular importance. Countries used a variety of monetary policy regimes and, depending on their choice, they had different economic instruments available to deal with the crisis. The aim of the research was whether exchange rate devaluation and/or depreciation are capable of effectively and fully eliminating the negative effects of the global economic crisis, as well as the consequent poor export performance and contracted economic activity. Our findings show that during an economic crisis those countries that use their own currency cannot substantially adjust their trade deficit by depreciating their currency. Moreover, it is suggested that during the global economic crisis, the balance of payments deficit is not impacted significantly by the exchange rate, any more. In such cases, other factors play a more significant role, like as government spending, followed by foreign demand and direct investments.

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Is the floating exchange rate a shock absorber in Albania? Evidence from SVAR models

Miteza

Tanku²,

Vika³

2023

Econ Change Restruct

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The choice of a foreign exchange regime hinges primarily on whether the real exchange rate acts as a shock absorber or reverberator for macroeconomic fluctuations. This policy choice is considered central especially prior to joining currency areas such as the Eurozone. We investigate whether Albania’s current floating exchange rate regime contributes to macroeconomic stability, or generates volatility. Using three different structural vector autoregression techniques, and an expanded five-variable model, we show that the real exchange rate has played a shock absorbing role, buffering the Albanian economy primarily from real demand shocks. The analysis reveals that monetary shocks and supply-side shocks have modest contributions in real exchange rate volatility. This evidence in favor of the “shock absorbing” view of exchange rates lends support to Albania’s policy choice of a flexible exchange rate system. If in future Albania considers joining a currency area, its monetary authority will need to pay attention to real currency misalignments as well as the availability and flexibility of alternative adjustment mechanisms.

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Exchange rate as a shock absorber in Poland and Slovakia: Evidence from Bayesian SVAR models with common serial correlation

Cited by 11 publications

References 17 publications

Insulating property of the flexible exchange rate regime: A case of Central and Eastern European countries

Insulating property of the flexible exchange rate regime: A case of Central and Eastern European countries

The impact of the exchange rate on the foreign trade imbalance during the economic crisis in the new EU member states and the Western Balkan countries

Is the floating exchange rate a shock absorber in Albania? Evidence from SVAR models

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