Floating Exchange Rate as an Automatic Stabiliser on the Example of Polish Economy

Michal Pronobis ()
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Michal Pronobis: WSB University in Gdansk, Gdansk, Poland

Economic Research Guardian, 2017, vol. 7, issue 2, 58-71

Abstract: In the theory of economics and in the publicist discussion there is an view stating that the fluctuations of the exchange rate act as an automatic stabiliser, that is namely: the recovery and the slowdown stages in the economic growth are usually followed by the appreciation/depreciation of the exchange rate, which should stabilise cyclical fluctuations, according to the theory. The aim of the article is to verify a relation between changes in economic conditions in Poland and fluctuations in the EUR/PLN exchange rate, and considering such a context, to verify whether the exchange of the Polish zloty performs a role of an automatic stabiliser. The article provides an analysis of the correlation between the changes in the EUR/PLN exchange rate and the dynamics of the GDP growth and of industrial production. The Author applies a simple measurement method based on the Pearson linear correlation coefficient. The analysed time period includes the years 2003-2016, which has provided the Author with an opportunity to observe long series of variables. The analysis proves that there is a relation between the volatility of the exchange rate of the Polish zloty and the development of the economic situation, however it is not a strong dependency. Furthermore, the analysis does not provide any indications of any possible symmetry or asymmetry in the behaviour of the exchange rate acting as an automatic stabiliser of the economic situation, depending on its stages. It can be therefore concluded that during the analysed period of time, there is not any close relation observed between the movement of the exchange rate of the Polish zloty and the current economic situation; hence, the exchange rate mechanism stabilising the economic conditions has not worked. In this context, the volatility of the PLN exchange rate is coincidental, or it results from some other factors. The conclusions drawn from the presented analysis may bring significant implications for the national economic policy, particularly in the context of the current discussion on the potential accession of Poland to the Eurozone. Considering the fact that in the article a relatively simple research method has been applied, the Author discerns a necessity to start further in-depth research studies oriented towards the recognition of the role performed by the exchange rate as a stabilising mechanism in economy.

Keywords: Exchange rate; Automatic stabiliser; Economic policy (search for similar items in EconPapers)
JEL-codes: E42 E44 E52 E61 F31 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:wei:journl:v:7:y:2017:i:2:p:58-71

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