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Has Trade any Importance in the Transmission of Currency Shocks?: an empirical application for new EU Member States from Central and Eastern European Countries. CEPS ENEPRI Working Papers No. 28, 1 July 2004

De Santis, Roberta. (2004) Has Trade any Importance in the Transmission of Currency Shocks?: an empirical application for new EU Member States from Central and Eastern European Countries. CEPS ENEPRI Working Papers No. 28, 1 July 2004. [Working Paper]

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    Abstract

    The object of this study is to assess the role of trade in the transmission of currency shocks across geographically close countries. The analysis will focus on identifying and comparing the degree of vulnerability of new EU member states from the Central and Eastern European countries (CEECs) to currency shocks. We interpret the interactions that a centre-periphery model identifies for periphery countries as a possible description of existing interdependencies among CEECs. According to the centre periphery model discussed by Corsetti et al. (1998b), “if there is no pass-through, then direct bilateral trade links may play a more important role than competition in the third market in determining the transmission of exchange rate shocks in the periphery. If there is full pass-through, a high share of bilateral trade within a region can actually limit the extent of beggar-thy-neighbour effects.” These effects are emphasised by a high degree of export similarity among the countries in the periphery. As a result of the heterogeneity in pass-through and trade structures, it is very difficult to derive a unitary policy implication on the potential sustainability of the exchange rate mechanism (ERM) II. Yet it is possible to single out the country pairs in which the likelihood of transmitting currency shocks is higher. Preliminary results point out that (other things being equal and given the contained intra-periphery trade) the transmission of currency disturbances is lower if the disturbance originates in countries with low a pass-through rate (the Slovak and Czech Republics, Estonia and Latvia) and higher if it originates in countries with a high pass-through rate (Poland, Hungary and Slovenia).

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    Item Type: Working Paper
    Uncontrolled Keywords: Currency shocks.
    Subjects for non-EU documents: EU policies and themes > External relations > EU-Central and Eastern Europe
    EU policies and themes > Policies & related activities > economic and financial affairs > EMU/EMS/euro
    EU policies and themes > Policies & related activities > economic and financial affairs > trade policy
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > ENEPRI Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 14 Apr 2007
    Page Range: p. 25
    Last Modified: 15 Feb 2011 17:44
    URI: http://aei.pitt.edu/id/eprint/6733

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