The Role of Real Exchange Rates in the Central European Transformation
Lucjan T. Orlowski
The study eamines the interactions between real exchange rates, current accounts and capital account balances in Poland, Hungary and the Czech Republic. The empirical investigation leads to a strong endorsement of more flexible exchange rates in the present stage of the economic transformation process of the former socialist countries in Central and Eastern Europe. Exchange rate flexibility allows more independent monetary policies that focus on financing structural adjustments and institutional changes in transition economies. However, the integration process with the European Union and more remote considerations of possible accession to the European Monetary Union will require a gradual move to fixed exchange rates and to an exchangerate-based monetary policy.