Management homework help. Topic:
Critically discuss the causes of nominal and real exchange rate fluctuations, misalignments and the exchange rate policy in Central and Eastern European countries.
- You are expected to select a country from the followings: Albania, Belarus, Bulgaria, Croatia, Czech Republic, Hungary, Moldova, North Macedonia, Poland, Romania, Serbia, and Turkey. There will be a 2000 wordcount limit for the coursework. You can obtain annual time series covering 2008-2019 for variables such as nominal and real exchange rates, price level (inflation rates), interest rates, money supply (growth rates), trade balances and productivity growth rates. These are available from the IMF and World Bank websites. They are also available from National Central Banks and National Statistical departments.
- Evaluate the fluctuations of nominal exchange rate. Use the monetary approach to determine nominal exchange rates (Purchasing Power Parity, interest parity condition, money supply and trade balance). You are not expected to run estimations of these models, however, you are expected to use data for your observations. Prepare a table showing the percentage changes of nominal exchange rates in respect to interest rate differentials, inflation differentials, monetary growth differentials and trade balances. You can use your selected country as the domestic country and the Eurozone or the US as the foreign country. Discuss whether the monetary approach is useful in explaining exchange rate fluctuations. If not, what are the limitations? You can also use existing literature to explain your results.
- Evaluate the fluctuations of real exchange rates. Use the Balassa-Samuelson model to determine the changes in real exchange rates. You are expected to calculate real exchange rate growth rates (by using nominal exchange rates and price level (CPI, PPI, or GDP deflator) and observe whether relative productivity growth rates explain the movements in real exchange rate movements. You are not expected to run estimations, however, you are expected to use data for your observations. Prepare a table showing the percentage changes in real exchange rates and relative productivity changes. You can use your selected country as the domestic country and the Eurozone or the US as the foreign country. You can use GDP or employment for relative productivity or industrial production for relative productivity of tradable goods. Discuss whether the Balassa-Samuelson model is useful to explain real XR fluctuations. If yes, are your results consistent with the theory? If not, what are the limitations? You can use existing literature to explain your results.
- Explain the exchange rate policy in your selected county for the selected period. How does the exchange rate policy contribute to the efficiency in the foreign exchange markets? Discuss.
- Discuss how these models explain the nominal and real exchange rate movements during crisis and post-crisis periods.
You can use various articles, books and the lecture notes for this coursework. The followings papers are among many you may find online that can help you kick-start your discussion:
Korteweg, Pieter, 1982. Exchange Rate and Monetary Policy in a World of Real Exchange Rate Variability in Exchange Rate Policy ed. by R. A. Batchelor and G.E. Wood. The MacMillian Press Ltd. You can download another version from: https://ies.princeton.edu/pdf/E140.pdf
Jesús Crespo-Cuaresma, J.Fidrmuc and R. MacDonald, 2003. The monetary approach to exchange rates in the CEECs. BOFIT Discussion Papers, No.14
Mihalijek D. and M. Klau, 2008. Catching-up and inflation in transition economies: the Balassa-Samuelson effect revisited. BIS Working Papers, No. 270