Exchange rates and monetary fundamentals in CEE countries: Evidence from a panel approach

Marek Dąbrowski, Monika Papież () and Sławomir Śmiech ()

Journal of Macroeconomics, 2014, vol. 41, issue C, 148-159

Abstract: This paper examines whether the monetary model is a reasonable framework for exchange rate movements in Central and Eastern European countries. We apply the methodology for non-stationary panels, which allows for cross-sectional dependence. We also choose the timespan of data free of high inflation periods and focus on countries with relatively flexible exchange rates. Using quarterly panel data, 2001:4–2012:4, we find evidence of cointegration between exchange rates and macroeconomic fundamentals. Granger causality tests reveal that exchange rates have reverted to the long-run relation implied by the monetary model. The results obtained are not driven by the recent crisis.

Keywords: Monetary exchange rate model; Central and Eastern European countries; Cross-sectional dependence; Panel cointegration; Granger causality (search for similar items in EconPapers)
JEL-codes: C33 E44 F36 F41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:41:y:2014:i:c:p:148-159

DOI: 10.1016/j.jmacro.2014.05.005

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