 Competitiveness channel in Poland and Slovakia: a pre-EMU DSGE analysisNo 86, NBP Working Papers from Narodowy Bank Polski Abstract: Once a country joins a monetary union, an efficient competitiveness channel is considered to be the main substitute for the abandoned autonomous monetary and exchange rate policy. This paper attempts to make an empirical assessment of how the price competitiveness of domestic producers stabilizes the Polish and Slovak economies against the background of potentially procyclical real interest rates in EMU. To address this issue, we use a small open economy DSGE model. We compare the FIML estimates and resulting IRFs for Poland and Slovakia, concluding that the latter country seems in general to be more capable of handling asymmetric shocks under the common monetary policy. Also, if there was a natural interest rate disparity of 1 percentage point in favour of a catching-up economy and agents expected a 30-year long period of closing this gap, our model would predict a terms of trade appreciation for both countries in question, whereby the required appreciation would be more pronounced for Poland than for Slovakia (5.1% and 3.4% respectively). In the context of Slovak revaluations in ERM II, this could be taken into consideration when setting the final conversion rate, along with its further pros and cons. Keywords: Competitiveness channel; EMU; MCI-ratio; DSGE; forward-looking estimation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:86 Access Statistics for this paper More papers in NBP Working Papers from Narodowy Bank Polski Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.