Nature of Exchange Rates Cyclicality in Central and Eastern European Countries

This paper provides empirical evidence on relationship between cyclical components of real effective exchange rate (REER) and selected macroeconomic fundamentals that are frequently used in exchange rate determination models. The analysis focuses on ten Central and Eastern European countries over the period 1998-2011. Cross correlation is applied on quarterly, filtered and seasonally adjusted data. Correlation coefficients are usually sufficiently high if REER leads or lags the respective variable of more than two quarters. However, results on procyclicality, acyclicality or countercyclicality of exchange rates are ambiguous and differ across the analyzed countries. Level of the country’s openness does not significantly affect intensity of the relationship between REER and macroeconomic fundamentals.