Abstract
This study investigates causal dynamics between crude oil prices and exchange rates in Czech Republic, Poland and Hungary by employing monthly data from the beginning of flexible exchange regime in each country to December 2011. The study benefits from the recent advance in the time series econometric analysis and carries out linear causality, non-linear causality, volatility spillover and frequency domain causality tests. The frequency domain causality analysis results imply that oil price fluctuations affect real exchange rates in the long run in Poland and Czech Republic. On the other hand, frequency domain causality test results indicate that oil price fluctuations do not affect exchange rate in any period in Hungary despite its economy?s high imported energy dependency.
Highlights
The term of transition economies includes the countries located in Central and Eastern Europe
The causality-in-variance test results, analogous with the non-linear Granger causality test results, suggest that there is no causality between the relative oil price and real exchange rate in any countries
This paper examines the interactions and feedbacks between the real exchange rates and the real oil prices in Czech Republic, Poland and Hungary for the time period that begin from May 1997 for Czech Republic, April 2000 for Poland and October 2001 for Hungary and end with December 2011
Summary
The term of transition economies includes the countries located in Central and Eastern Europe. Most of them are former member of Soviet Union while others belong to former Eastern European bloc. The definition of transition countries can be widened by including the countries out of Europe. The common point of all the countries is that they emerge from a socialist type command economy towards a market based economy. The key objectives of transition are to raise economic efficiency and promote growth, International Money Fund (IMF 2000). In this regard, macroeconomic stabilization, price and market liberalization, restructuring and privatizing state enterprises and redefining the role of the state are the main steps of the transition process
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