Linkage among exchange rate, price level and balance of payments: The case of the Czech Republic

Authors

URBANOVSKÝ Tomáš PLÍHAL Tomáš

Year of publication 2016
Type Article in Proceedings
Conference The 8th international conference: Economic Challenges in Enlarged Europe
MU Faculty or unit

Faculty of Economics and Administration

Citation
Field Economy
Keywords exchange rate; balance of payments; cointegration; VECM; Granger causality
Description Relationships between selected macroeconomic variables - nominal exchange rate, international reserves, real exchange rate, price level, credit and debit transactions of balance of payments - in the Czech Republic have been investigated in presented paper. Implemented cointegration analysis and vector error correction model suggest several pairs of Granger causalities. It has been discovered that change in price level Granger-causes international reserves change and change in debit transactions Granger-causes price level change. These relationships have nature of two-way Granger causalities, which means that reversed relationships hold as well. One-way Granger causality was found also in two cases: change in nominal exchange rate Granger-causes real exchange rate change and change in credit transactions Granger-causes price level change. Other relationships implying Granger causality were inconclusive. Error term was significant only in cases of variables price level and debit transactions, which means that only these variables return to their long-term equilibria.
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