Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary

43 Pages Posted: 4 Apr 2000

See all articles by Ali M. Kutan

Ali M. Kutan

Southern Illinois University at Edwardsville

Selahattin Dibooglu

University of Missouri at Saint Louis - Department of Economics

Abstract

This paper examines Brada's (1998) conjecture about the path of real exchange rates in two successful transition economies, Hungary and Poland. He argues that, as a result of the very diverse fiscal and monetary policies to be found among these economies, real exchange rates in some economies should follow a path that mirrors mainly the effect of real shocks and others a path reflecting the monetary shocks. To test this hypothesis, we use a popular structural VAR model and, assuming long-run neutrality of nominal shocks, we decompose the real exchange rate and price movements into those attributable to real and nominal shocks. Using monthly data from 1990 to 1999 for Hungary and Poland, we find that nominal shocks had a major influence in explaining real exchange rate movements in Poland, while real shocks had a larger influence on real exchange rate movements in Hungary.

Key words: real exchange rate, inflation, transition economies, structural VARs, exchange rate regimes, and exchange rate modeling.

JEL Classification: C5, F3, and P5

Suggested Citation

Kutan, Ali M. and Dibooglu, Selahattin, Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary. Available at SSRN: https://ssrn.com/abstract=216956 or http://dx.doi.org/10.2139/ssrn.216956

Ali M. Kutan (Contact Author)

Southern Illinois University at Edwardsville ( email )

Department of Economics and Finance AH-3141
Edwardsville, IL 62026-1102
United States
618-650-3473 (Phone)
618-650-3047 (Fax)

HOME PAGE: http://https://ideas.repec.org/e/pku30.html

Selahattin Dibooglu

University of Missouri at Saint Louis - Department of Economics ( email )

8001 Natural Bridge Road
St Louis, MO 63121
United States

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