Exchange rate volatility, currency misalignment, and risk of recession in the Central and Eastern European countries
Authors:
- Victor Shevchuk,
- Roman Kopych
Abstract
This study is aimed at estimation of the exchange rate volatility and its impact on the business cycle fluctuations in four central and eastern European countries (the Czech Republic, Hungary, Poland, and Romania). Exchange rate volatility is estimated with the EGARCH(1,1) model. It is found that exchange rate volatility is affected by the components of the Index of Economic Freedom from the Heritage Foundation, besides inflation and crisis developments. The empirical results using GMM estimation technique and comprehensive robustness checks suggest that exchange rate volatility reduces the risk of recession in the Czech Republic while the opposite effect is found for Hungary and Romania, with a neutrality for Poland. These findings continue to hold after controlling for the fiscal and monetary policy indicators. There is evidence that the RER undervaluation prevents sliding into a recession on a credible basis in Poland only, with a neutral stance for other countries. Except in Romania, higher levels of economic freedom is associated with worsening of the cyclical position of output. Among other results, stabilization policies in the recession imply fiscal tightening for the Czech Republic and Romania, higher money supply for the Czech Republic and Poland, and lower central bank reference rate for Hungary.
- Record ID
- CUT522b7d995474457495c387e031dfc427
- Publication categories
- ;
- Author
- Journal series
- Risks, ISSN , e-ISSN 2227-9091, Monthly
- Issue year
- 2021
- Vol
- 9
- No
- 5
- Pages
- [1-19]
- Article number
- 82
- Other elements of collation
- tab.; wykr.; Bibliografia (na s.) - 17-19; Oznaczenie streszczenia - Abstr.; Numeracja w czasopiśmie - Vol. 9, Iss. 5, Spec. Iss.
- Substantive notes
- Special Issue: Data Analysis for Risk Management – Economics, Finance and Business
- Keywords in English
- exchange rate volatility, currency misalignment, business cycle, central and eastern European countries
- DOI
- DOI:10.3390/risks9050082 Opening in a new tab
- URL
- https://www.mdpi.com/2227-9091/9/5/82/htm Opening in a new tab
- Language
- eng (en) English
- License
- Score (nominal)
- 70
- Uniform Resource Identifier
- https://cris.pk.edu.pl/info/article/CUT522b7d995474457495c387e031dfc427/
- URN
urn:pkr-prod:CUT522b7d995474457495c387e031dfc427
* presented citation count is obtained through Internet information analysis, and it is close to the number calculated by the Publish or PerishOpening in a new tab system.