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Exchange Market Pressure in Central Europe: An Application of the Girton-Roper Model

Stavarek, Daniel and Dohnal, Marek (2009): Exchange Market Pressure in Central Europe: An Application of the Girton-Roper Model. Published in: Economies of Central and Eastern Europe: Convergence, Opportunities and Challenges. Conference Proceedings. Tallinn, 14-16 June 2009. ISBN 978-9949-430-28-4.

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Abstract

This paper applies the Girton-Roper model of exchange market pressure (EMP) on four Central European economies (Czech Republic, Hungary, Poland, Slovakia) over the period 1995-2008. The results suggest that there is a strong negative relation between domestic credit and EMP in all countries. We also found evidence of positive effect of domestic income on EMP in most of the countries. The paper reveals that EMP in the Czech Republic and Hungary was mostly absorbed by changes of exchange rate while changes in reserves absorbed EMP in Slovakia. The levels of EMP estimated do not pose a significant threat for fulfilment of the exchange rate stability convergence criterion.

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