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

Marek Dąbrowski () and Justyna Wróblewska ()

International Economics, 2020, vol. 162, issue C, 34-49

Abstract: We examine the insulating property of flexible exchange rates in CEE economies considering that they have adopted different regimes. We estimate a set of Bayesian structural VAR models with common serial correlations using data spanning 1998q1-2015q4. We derive the long-term identifying restrictions from a macroeconomic model. We find that irrespective of the exchange rate regime, real shocks primarily drive output. However, its reactions to these shocks 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.

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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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:162:y:2020:i:c:p:34-49

DOI: 10.1016/j.inteco.2020.03.002

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