Conference paper
FOUR CURRENCIES OUTSIDE THE EUROZONE
Imre Vámos
orcid.org/0000-0002-4785-0411
; State Audit Office of Hungary, Hungary
Zsuzsanna Novák
; Magyar Nemzeti Bank Directorate Monetary policy instruments, foreign exchange reserves and risk management, Hungary
Abstract
In the European Union only a few countries have remained outside the eurozone. Among these countries with independent monetary policies few pursue a floating exchange regime: the Czech Republic, Hungary, Poland and Romania (IMF, 2013). It is worth examining whether there is a cointegrating relationship between underlying economic fundamentals and the real and nominal exchange rate of these countries against the euro. The paper points out that it is difficult to prove the existence of any such relationship: on the basis of data between 2001-2014 making forecasts of the paths of equilibrium exchange rates is hampered by the lack of an adequate model, the short time series and the strong volatility of these currencies, especially the Hungarian forint and the Romanian leu. An alternative approach to estimate equilibrium exchange rates is the unobserved components model proposed by Chen and MacDonald (2010) which does not necessitate the existence of a cointegrating relationship for defining permanent equilibrium exchange rates. As Dick et al. (2015) reveals good exchange rate estimates rely on the forecaster’s ability to understand the relation between fundamentals and the exchange rates mostly in times when exchange rate more strongly deviate from their PPP value. Therefore, applying more approaches for exchange rate analysis helps us better observe this relationship.
Keywords
exchange estimates; cointegration; eurozone membership
Hrčak ID:
161660
URI
Publication date:
1.10.2015.
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