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

Marek A. Dabrowski and Justyna Wróblewska

International Economics, 2020, issue 162, 34-49

Abstract: 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.

Keywords: Open economy macroeconomics; Exchange rate regimes; Real and nominal shocks; Bayesian structural VAR; Common serial correlation (search for similar items in EconPapers)
JEL-codes: C11 E44 F33 F41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2020-q2-162-3

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