Schardax, Franz --- "Exchange rates and long-term interest rates in Central Europe – how do monetary and fiscal policies affect them?" [2003] ELECD 125; in Tumpel-Gugerell, Gertrude; Mooslechner, Peter (eds), "Structural Challenges for Europe" (Edward Elgar Publishing, 2003)

Book Title: Structural Challenges for Europe

Editor(s): Tumpel-Gugerell, Gertrude; Mooslechner, Peter

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843764748

Section: Chapter 25

Section Title: Exchange rates and long-term interest rates in Central Europe – how do monetary and fiscal policies affect them?

Author(s): Schardax, Franz

Number of pages: 24

Extract:

25. Exchange rates and long-term
interest rates in Central Europe ­
how do monetary and fiscal
policies affect them?1
Franz Schardax2

1. INTRODUCTION

Against the background of the future integration of Central and Eastern
European accession countries into the euro area (which includes member-
ship in ERM II), the issue of the consistency of monetary and fiscal pol-
icies in an environment of increasingly liberalized capital flows will play
an ever more important role. However, in order to pursue such consistent
policies, macroeconomic policy makers require information about the
likely impact of their actions on financial as well as real variables. By ana-
lysing the impact of monetary and fiscal policy impulses in the Czech
Republic, Hungary and Poland under floating exchange rate regimes as
well as under crawling peg/band regimes, this chapter attempts to provide
such information.
After a review of empirical investigations of monetary and fiscal policies
which apply vector autoregression (VAR) techniques in section 2, section 3
provides an overview of the macroeconomic framework in the three
Central European accession countries (CEEC-3) covered by this study. In
section 4, three country-specific unrestricted VAR models are estimated
and used to examine the impact of central government budget balances and
money market interest rate differences between CEECs and a reference
country/currency basket on exchange rates (gross official reserves for the
exchange rate peg case) and yield differences for five-year bonds. For the
Czech Republic and Poland, the most recent monthly data since the ...