Sources of exchange rate volatility in the european transition economies (effects of economic crisis revealed)

Mirdala, Rajmund (2012): Sources of exchange rate volatility in the european transition economies (effects of economic crisis revealed). Published in: Journal of Applied Economic Sciences , Vol. 7, No. 3 (October 2012): pp. 270-282.

Abstract

Negative macroeconomic performance issues represent one of the key effects of crisis period. Due to many economic crisis related side effects countries became more vulnerable to various types of endogenous and exogenous shocks. Exchange rates of the European transition economies became much more volatile as a result of increased uncertainty on the financial markets as well as changed behavior of structural shocks affecting exchange rates path during the crisis period. As a result we expect a contribution of the structural shocks to the exchange rates path has changed. In the paper we analyze sources of exchange rate fluctuations in the European transition economies. We estimate the contribution of nominal, supply and demand shocks to NEER and REER variability implementing SVAR methodology. Long run restrictions are applied to unrestricted VAR model to identify structural shocks. Variance decomposition and impulse-response functions are computed for each individual country for the period 2000-2007 and 2000-2011. Comparison of results for both periods is crucial for identification of the role of economic crisis in determining exchange rate volatility in the European transition economies.

• Item Type: MPRA Paper
• Language: English
• Keywords: exchange rates, exogenous structural shocks, structural vector autoregression, variance decomposition, impulse-response function
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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