The Effect of Nominal Exchange Rate Volatility on Real Macroeconomic Performance in the CEE Countries

Posted: 12 Mar 2012

See all articles by Olga Arratibel

Olga Arratibel

European Central Bank (ECB)

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Reiner Martin

Joint Vienna Insitute; European Central Bank (ECB)

Aleksandra Zdzienicka

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: March 12, 2012

Abstract

This paper analyzes the relation between nominal exchange rate volatility and several macroeconomic variables, namely real output growth, excess credit, foreign direct investment (FDI) and the current account balance, in the Central and Eastern European EU member states. Using panel estimations for the period between 1995 and 2008, we find that lower exchange rate volatility is associated with higher growth, higher stocks of FDI, higher current account deficits, and higher excess credit. At the same time, the recent evidence seems to suggest that following the global financial crisis, “hard peg” countries may have experienced a more severe adjustment process than “floaters”. The results are economically and statistically significant and robust.

Keywords: EU, Exchange rate volatility, Growth, FDI, Credit, Current account

JEL Classification: F3, F4, F5

Suggested Citation

Arratibel, Olga and Furceri, Davide and Martin, Reiner and Zdzienicka, Aleksandra, The Effect of Nominal Exchange Rate Volatility on Real Macroeconomic Performance in the CEE Countries (March 12, 2012). Economic Systems, Vol. 35, No. 2, 2011, Available at SSRN: https://ssrn.com/abstract=2020263

Olga Arratibel

European Central Bank (ECB) ( email )

Eurotower
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Davide Furceri (Contact Author)

University of Palermo ( email )

Viale delle Scienza
Palermo, 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Reiner Martin

Joint Vienna Insitute ( email )

Mariahilferstrasse 97
Wien, A-1090
Austria

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Aleksandra Zdzienicka

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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