Exchange rate dynamics and their effect on macroeconomic volatility in selected CEE countries

Audzei, Volha; Brázdik, František

doi:10.1016/j.ecosys.2018.02.003

Cited by 10 publications

(8 citation statements)

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“…Hsing (2009) reveals that real depreciation causes the trade balance in Slovenia to deteriorate in the short run and long run and that there is lack of support for a J-curve in Slovenia. 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.…”

Section: Literature Reviewmentioning

confidence: 99%

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

Hsing

2017

South East European Journal of Economics and Business

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The Slovenian economy shows strengths and weaknesses. The economic growth rate of 2.9% in 2015 was higher than the EU average of 2.0%. Employment grew 0.86% from 797.792 thousand in 2014 to 804.637 thousand in 2015. The unemployment rate continued to decline from a recent high of 10.1% in 2013 to a low of 9.0% in 2015, which was slightly lower than the average unemployment rate of 9.4% in the European Union. International trade has improved as evidenced by a trade surplus of 2,031 million Euro in 2015 from a recent trade deficit of 610 million Euro in 2011, suggesting that its export sector became more competitive globally.

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Section: Literature Reviewmentioning

confidence: 99%

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

Hsing

2017

South East European Journal of Economics and Business

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“…Their Bayesian SVAR results reveal that a higher exchange rate flexibility in Poland was helpful in absorbing real shocks. Audzei and Brázdik ( 2018 ) use an SVAR model to analyze ten CEE economies, either new eurozone members or preparing for accession. Their evidence for most countries shows that the real exchange rate does not create much business cycle instability, supporting the “real economy” view that real exchange rates are shock-absorbing.…”

Section: Literature Reviewmentioning

confidence: 99%

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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“…Arsic et al (2017) analyzed fiscal policy in 11 European states in the period 2000-2013 and highlighted that in the pre-crisis period of 2008 "CEE countries with fixed exchange rate regimes had less expansionary fiscal policies than those with a floating regime, while during the crisis no impact of the exchange regime on fiscal policies was found" (Arsic et al, 2017, p. 367). Audzei and Brázdik (2018) studied CEE states from the perspective of macroeconomic volatility generated by exchange rate shocks; through the use of structural VAR, they demonstrated that the exchange rate does not cause high volatility in the economic environment and implicitly influences the fiscal policy weakly, with the exception of Bulgaria and Slovenia.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In the specialized literature, the relationship between fiscal policy and external competitiveness can be analyzed from at least two perspectives. The first perspective involves changing the component of aggregate demand through fiscal policy, influencing the real exchange rate and, subsequently, the trade balance (Arsic et al, 2017;Audzei & Brázdik, 2018;Klein & Linnemann, 2019;Portella-Carbó & Dejuán, 2019). The second perspective aims at microeconomic aspects and assumes that economic agents are rational.…”

Section: Literature Reviewmentioning

confidence: 99%

“…If during the '90s of the 20th century all CEE countries experienced an increase in competitiveness, generated by strong inflows of foreign capital, increased domestic credit, access to advanced technologies (Bilas, 2020), after the financial crisis of 2007/2008 there was a substantial loss of competitiveness and a deepening in public debts and budget deficit (Audzei & Brázdik, 2018). The resort to foreign loans has helped states in the short term, but after 2012 they began to use fiscal measures to stimulate savings; at times, devaluations of the national currency occurred, with consequences for increasing external competitiveness .…”

Section: Introductionmentioning

confidence: 99%

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Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

Ţigănaşu

Pascariu

Lupu

2022

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Research background: The transformations induced by global challenges call for new approaches towards competitiveness and thus require a consistent rethinking of strategies and mechanisms so that they could be better adapted to the constantly changing context. Prior to the European Union (EU) accession, the Central and Eastern European (CEE) states began a broad process of economic reforms, including trade liberalization, mass privatization, exchange rate liberalization, all of which led to a wider opening to new markets, the creation of new opportunities for production and to ensuring the competitiveness of companies on foreign markets. By far, the most important step in the post-communist period was joining the EU, achieved after 2004. Over time, these states have faced, on the one hand, issues related to addressing systemic vulnerabilities, and on the other hand, finding the most appropriate measures to induce competitiveness. The influence of public policies on competitiveness is still an issue that needs to be debated, our study proposing to examine the reaction of external competitiveness to the increase of government spending and corruption. Purpose of the article: The aim of this paper is to analyze the impact of fiscal policies and corruption on the external competitiveness of the eleven countries from Eastern Europe (Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) for the period 1995?2020. The choice of this time interval is to better capture the trinomial relationship between competitiveness, fiscal policy and corruption before and after the process of integration of the CEE states into the EU. Methods: The methodology chosen is based on ARDL (Autoregressive Distributed Lag) with structural breaks, the period taken into account being 1995?2020. The Unit root test of augmented Dickey?Fuller ADF (2016) was used to assess the time series stationarity. The test developed by Bai and Perron (2003) is applied to detect structural breaks, by resorting to the LM test. The tests for the cointegration between the considered variables, using the ARDL model, proposed by Pesaran et al. (2001), were also part of the research. The causality test of Granger et al. (2000) was used to assess the conditionality between the indicators. By applying these methods, it was highlighted that, especially after 2007, in the states under analysis, expansionary fiscal policies have led to internal devaluations of the currency, which ultimately increased external competitiveness, measured as real effective exchange rate. Instead, corruption has a negative impact on competitiveness. Findings & value added: The obtained results point out the relationship between competitiveness, fiscal policy and corruption in CEE countries. In the case of those that have a high competitiveness, even if there are large government expenditures, there is also an economic environment conducive to the implementation of measures that generate added value on a large scale. Conversely, in countries where corruption is high, the impact of government fiscal policies on competitiveness is reduced due to the negative effects caused by this phenomenon. Our study brings at least two contributions to the literature. First of all, the research shows how a growth in public spending affects the competitiveness of CEE economies through the real exchange rate. Secondly, it takes into account the phenomenon of corruption applied to Eastern countries, emphasizing a decrease in the external competitiveness of these economies in response to the manifestation of corruption.

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Exchange rate dynamics and their effect on macroeconomic volatility in selected CEE countries

Cited by 10 publications

References 11 publications

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

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

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

Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

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