The paper discusses the strong output decline in the countries of Central and Eastern Europe. It starts from the puzzling observation that the former CSFR, Hungary and Poland experienced a relatively similar decline in output in spite of completely different stabilization and transformation...

In the new situation with flexible exchange rates, monetary policy in Europe will have to rely more on indicators than previously under fixed rates. One of the potential indicators, the forward interest rate curve, can be used to indicate market expectations of the time-paths of future short...

We study the gains from increased wage flexibility and their dependence on exchange rate policy, using a small open economy model with staggered price and wage setting. Two results stand out: (i) the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize...

In this paper, we consider an alternative perspective to China's exchange rate policy. We study a semi-open economy where the private sector has no access to international capital markets but the central bank has full access. Moreover, we assume limited financial development generating a large...

In this paper we study whether policy makers should wait to intervene until a financial crisis strikes or rather act in a preemptive manner. We study this question in a relatively simple dynamic stochastic general equilibrium model in which crises are endogenous events induced by the presence of...

The New Open Economy Macroeconomics has allowed economists to tackle classical problems with new tools, while also generating new ideas and questions. In their attempts to make the new models capture empirical regularities, researchers have entertained a variety of assumptions about the...

Like all major currencies, the euro will attract a fringe of hangers-on. Though this need not influence overall policy with regard to the value of the euro, important policy questions arise. Can EMU members gain from cooperative arrangements for influencing or supporting fringe currencies? If...

Five real exchange rate indicators are computed to assess the international competitiveness of Hungarian industry. These indicators are explained in econometric equations by employment, unemployment, productivity, interest spread and real producer wage. Causality tests reveal that external...

Recent events, historical evidence and geographical proximity suggest that the six EFTAns and twelve Central and East European countries (CEECs) are natural trading partners. This paper evaluates this suggestion by estimating the potential for EFTA-CEEC trade using the gravity model of Wang and...

This paper fits a gravity model to the trade of 76 market economies. It then applies the model to data on East European economies to estimate what their trading potential might have been, had behaved like market economies in the mid-1980s. At existing levels of national income, the...