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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 ()

MPRA Paper from University Library of Munich, Germany

Abstract: We examine the insulating property of flexible exchange rate in CEE economies using the fact that they have adopted different regimes. A set of Bayesian structural VAR models with common serial correlations is estimated on data spanning 1998q1-2015q4. The long-term identifying restrictions are derived from a macroeconomic model. We find that irrespective of the exchange rate regime output is driven mainly by real shocks. Its reactions to these shocks, however, 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: 2019-05-09
New Economics Papers: this item is included in nep-bec, nep-cba, nep-mac, nep-mon, nep-opm, nep-ore and nep-tra
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