The Shifts in Demand and Supply Cause the Changes in Exchange Rates

CEU eTD Collection The Currency Development in theVisegradCountries Development The Currency Master of Arts in International Relations and European Studies European and Relations in International of Arts Master Department of International Relations and European Studies In partial fulfillment of the requirements for the degree of Supervisor: Professor Julius Horváth Similar butDifferent: Central European University European Central Lucia ZáhumenskáLucia Word Count: 17071 Word Count: Budapest, Hungary Budapest, 31 May 2007 31 May Submitted to Submitted By CEU eTD Collection the zloty and the forint. a why show of and Slovak inlackingin the koruna trend appreciation, Czech while the this trend least This at partially, by influenced zloty determinants. the negatively explains, these are mostly forintand However,the account. for CPIandcurrent influenced except is positively, koruna also Czechanalysis,the Ifind theSlovak isinfluenced positivelyby that factors, all koruna these By a comparative debt. foreign (external) andthe budget, state foreign trade, account, current balance 2006, namely rates, of payments, Price Index,interest Consumer periodthe of 1999to for studied are rate exchange the of determinants Several developments. rate exchange different whatstandsbehindthese investigate zloty. forintI and the Polish Hungarian instrengthening the a lackof this korunas Slovak and long-term Czech of the and the namely strengthening the developments, currency different they have indicators, macroeconomic of in the terms are similar countries these that fact the despite that shown is It Poland). and Republic, Slovak the Hungary, This in the currencydevelopments thesis examines Czech countriesRepublic, (the Visegrad the Abstract ii CEU eTD Collection BIBLIOGRAPHY...... 60 CONCLUSION...... 58 CHAPTER 3- THE CURRENCY DEVELOPMENTS IN THE VISEGRAD COUNTRIES- ANALYSIS...... 41 IN THE VISEGRADCOUNTRIES- CURRENCY 3- DEVELOPMENTS THE CHAPTER CHAPTER 2- HISTORICAL ECONOMIC AND CURRENCY DEVELOPMENT...... 22 CHAPTER 1- THEORETICAL 6 FRAMEWORK...... 1 ...... INTRODUCTION LIST OF TABLES IV AND FIGURES...... TABLE OF CONTENTS...... III II ABSTRACT...... 3.2 3.1 2.2 2.1 1.2 1.1 3.2.2 Comparative Analysis...... 49 3.2.1 The Description of ...... 49 the Variables T T E H L T ITERATURE REVIEW ITERATURE HE WO XCHANGE HE ISTORICAL E D P XPLANATION THE OF ETERMINANTS OF ATTERNS IN ATTERNS R E ATE CONOMIC D C EVELOPMENT OF THE EVELOPMENT URRENCY ...... 15 E D XCHANGE EVELOPMENT OF THE OF EVELOPMENT D IFFERENT D EVELOPMENTS OF THE R Table of Contents of Table ATE T RENDS IN THE RENDS IN V ...... 6 ...... ISEGRAD V ISEGRAD C OUNTRIES V V ISEGRAD ISEGRAD C OUNTRIES ...... 32 C C OUNTRIES OUNTRIES : F ROM ...... 48 ...... 41 1919 UNTIL P RESENT ...... 22 iii CEU eTD Collection Figure 3: Weekly overview of the four Visegrad exchange rates...... 42 ...... 36 June 1925 Figure 2: Dollar exchange rates for Austrian, Czech, and Hungarian Crowns, January 1914 to Figure 1: States of East Central Europe after the First World War...... 23 Table 16: Results for parliamentary elections to Sejm- Poland 1993, 1997, 2001...... 56 Table 15: Exchange rate determinants...... 54 Table 14: Foreign (external) debt...... 54 Table 13: ...... 53 State budget Table 12: Foreign trade...... 52 Table 11: Balance of payments and current account...... 51 Table 10: CPI and inflation rate...... 50 Table 9: Appreciation or depreciation of the Visegrad currencies...... 48 Table 8: Min,max and mean values for the Visegrad countries...... 46 39 Table 7: Prices andimports of exports of some deflationist andinflationist countries in 1924.... Table 6: Exchange rates of Visegrad countries, 1980, 1988-2000...... 38 Table 5: Exchange rates, annual averages 1913-1950...... 32 ...... 31 Table 4: GDP per capita Table 3: Macroeconomic stability...... 30 Table 2: Per capita GNP in 1960 as percent of that of the United States...... 28 Table 1: National Income per Head (in 1937 US $)...... 26 List of Tables and Figures and ofTables List iv CEU eTD Collection (1 May 2007). Matter?” Regime Rate Exchange Nominal Practices,” 3 (2 May 2007). Zambia,” in Rate Exchange Real ofthe Determinants Short-run (3 May 2007); Beatrice Kalinda Mkenda, “Long-run and the Accession Countries,” Accession the Europe,” Eastern and ofCentral Economies Transition inthe Movements Rate Exchange ofReal Assessment “An Liargovas, Economies: The Case of Poland and Hungary,” and Poland of Case The Economies: 289-292; Selahattin Dibooglu and Ali M. Kutan, “Sources ofRealExchange Rate Fluctuations in Transition Slovakia: Applicationof an Extended Mundell-Fleming Model,” Multinational Business Review 2 (3 May 2007). Policy Reform: What We Know and What“Economic on We Conference Need University to Know,”Stanford the at (Maypresented Paper 1999): Know?” to Do WeNeed 6, What We Know? 1 rate, exchange real of determinants havecurrency development? different indicators), macroeconomic and capita other do the Visegrad countries, despite their similar economic development (in terms of FDI, GDP per why answer question: the will, therefore, research This forint. Hungarian the or Polish zloty the term strengthening of Slovakthe and however Czechkorunas, the nosuch isin pattern present long- is the observed be can that pattern The four. Visegrad in the different very is development (FDI), unemploymentrate, and others. Contrary to what one would expect, however, the currency investmentforeignin suchas variousGDP percapita, development indicators, of direct terms economic similar have also countries These in 1989. overthrow its to rule communist the under share many similarfeatures, from geographic proximity,comparable history fate and similar Introduction For exchange rate regimes in general see for example: H. Robert Heller, “Determinants of Exchange Rate of Exchange “Determinants Heller, Robert H. example: seefor general in regimes rate exchange For See for example: Austin Murphy, “The Determininats of Exchange Rates between Two Major Currencies,” Major Two between Rates ofExchange Determininats “The Murphy, Austin example: Seefor Do What Economies: in Emerging Rates “Exchange Savastano, A. Miguel and Edwards Sebastian example: Seefor While a lot has been written on the topic of exchange rate in general and Poland) Czech the Hungary Republic, SlovakRepublic, (the countries The Visegrad Post-Communist Economies Journalof Money, Credit andBanking Working Papers 1/2003 , (Spring1996): 1-7; Yu Hsing, “Analysis of Exchange Rate Fluctuations for 11, no. 3(1999): 299-318; Peter Part, “RealExchange Rate Developments in 2 Working Paper 5874 the most appropriate exchange rate regimes, exchangerate appropriate most the Journal of Comparative Economics 10, no. 2(August 1978): 308-321; Ghosh et al., “Does the (July 2003): 1-18, (January 1997): 1-29, Working Papers in Economics 40 Applied Financial Economics Letters 29, (2001): 257-275; Panagiotis 3 (April 2001): 1-67, and forecasting and 1 and on the 1 (2005): 1 CEU eTD Collection March 2002 by adopting the monetary approach to explain the movements in movements toexplain individual the approach March 2002byadopting monetary the from andSlovenia Czech Hungary,1994 to Slovakia the Poland,September Romania, Republic, on data analyze Theauthors panel Europe. and Eastern inCentral of countries the exchange rate are either. identified currencies andnotrends of is the between developments noconnection the However,drawn individual currencies. impacton andthis sizeof the determinants negative,particular of or positive impact, whether the regime on the movements of exchange rate. exchange of movements the on regime and rate exchange the factor, “news” an economy, the of namely theopenness factors, particular 1999 to2004in six Central and Eastern European countries. Hefocuseson impactthe of three rate movements, the period and the countries studied. Moreover, Stan movements, andthecountries studied.Moreover, theperiod rate at hand, there are still significant differences, mostly concerning the determinants of exchange Crespo-Cuaresma, Jarko Fidrmuc Jarko Crespo-Cuaresma, and RonaldMacDonald. ei.cz/pdf/wbrf_papers/J_Stancik_WBRF_Paper.pdf> (3 May 2007). Discussion Paper 2006- 158 6 2007). (23 April AccessionStrategies,” (2006): 1-16, (20 April 2007); Mateusz Szczurek, “Exchange Rate Regimes and EMU countries. for these most suitable regime isthe rate exchange which namely angle, from a particular rather studied were Europe Eastern and Central of countries the Similarly, itdeserves. attention the Central and Eastern EuropeanCountries – Evolutions Characteristics,”and 5 bin/conference/download.cgi?db_name=res2007&paper_id=83> (3May 2007). Relationship?” (2005): 1-38, euros or dollars for go for holidays abroad enjoy the benefits which stem from strong currency, currency appreciation who those and consumers, importers, while because, is This competitiveness. its and economy impacts on country’s have other this might be as at time accession of the the rate exchange currency has implications on entry country’s to Eurozone,because is it crucial what will the example, thecrises, Russian which as of currency heart are at often monetary policies improper since monetary Crisis policy, for implications recent important experience have will patterns 1998,currency two the between discrepancy this of explanation An theshows East us, occur Asian arenot. well, the Hungarian and andthe so currencies CzechRepublic aredoing Polish the while across financial time anddevelopment of currencies in the Visegrad regionall and why particularly currenciesthe of Slovakia aroundcrises the world1997). (for Thein countries. these developments rates exchange strength the nominal concerning farhas beenundertaken so analysis of asnocomparative research, a differentthe This beencurrency has addressedby question not developments. any previous the of behind stand factors which see to examined be will rates exchange nominal the of determinants region due to similar Visegrad the on solely focus will thesis This studied. rate exchange of the determinants the and features shared by theseFidrmuc andMacDonaldin followingthe aspects: period the and the countries under examination countries. Furthermore, in the present thesis the the CEECs,” 7 producer prices. to prices consumer andinterest (M2),industrial of rates, the ratio money depositeuro, the production, stock Theauthors usemonthly nominal vis-à-vis data exchange rates. nominal on the exchange rates Jesús Crespo-Cuaresma, Jarko Fidrmuc and Ronald MacDonald, “The Monetary Approach to Exchange Rates in Rates Exchange to Approach Monetary “The MacDonald, Ronald and Fidrmuc Jarko Crespo-Cuaresma, Jesús It isimportant toinvestigate this relationship andfind whatstands out behind thedifferent BOFIT Discussion Papers 14 , (2003): 1-23, (1 7 This differs from thesis study by the Crespo-Cuaresma, 3 CEU eTD Collection 10 9 (25 November2006). 8 by influencedandthese zloty mostly negatively forint the However,the are account. current Slovakfor studied, is CPIand determinants the these influenced positively,also koruna except debt). (external foreign the and budget, state trade, foreign account, current payments, of balance rates, interest Index, Price Consumer namely rate, exchange the of determinants several on analysis comparative byperforming bedone This will development. currency intheir of terms countries amongfour are there the that and differences in the movements currencies the the explain collectedof Afterwards, from data strengthening andweakening. beBloomberg will usedto was strengthening and which one was compared Euroweakening andlarge to how was effectthe of1 period the for Slovakia banka, from Bratislava, collected Poštová were four for all countries exchange rates weekly of values The beanalyzed. will movements rate exchange Firstly, 3. in chapter performed be will incountry.capital to invest that they are reluctant therefore, as a sign beby currency investors can perceived foreign depreciation of weak economy and impacts on competitiveness foreign currency. sameamount of for the currencies of the economytheir products. of the underlining country. On the other hand, currencies to the domestic one. domestic tothe currencies Ibid. ď Ibid. uboš Jan The findings of thesisthis suggest the that Czech koruna isinfluenced positively by all In order to answer the aforementioned research question, various methodology techniques þ ík. “Koruna je v novom rekorde, chemici placu,” chemici rekorde, jevnovom “Koruna ík. 8 In order exchange pay Inorder foreign have these they to wages,however, forto the January January 1999 till 2006. 31 December Itwill be shownwhich currency 9 When currency gets stronger, exporters lessexporters receive stronger, domestic When gets currency SME on the Web on the SME 10 As such, currency appreciation has further appreciation As currency such, , 7 November 2006, , 7November 4 CEU eTD Collection patterns. Last section concludes. section Last patterns. analyzes between years currency 1999till the developments thesecurrency 2006 andexplains 3 Chapter forint). Hungarian and the zloty Polish the koruna, Slovak the Czechkoruna, (the similarities among theVisegradas well four, as overview of development of currencies four the 2givesChapter matter. abrief historical economic onthesubject of overview literature reviews existing 3,while in thepart later second whichis chapter applied framework, theoretical of inappreciation, whilethis trend lacking in zloty forint. andthe determinants. This explains,leastat partially,why the Slovak and the Czech koruna show a trend The of remainder is thesis this asfollows.organized The presents firstly nextchapter the 5 CEU eTD Collection 1992), 915. 13 12 11 in cause movements currency.the rate demand forexchange currency. 1.1 The Determinants ofExchange Rate countries. similar otherwise of differences of in toreveal causes needed order the crosscountry thisoneis beshown study will as that separately. It currencies studied Visegrad studies on conducted countriesthe as of well Central and Eastern Europe as research which similar discuss will section in this considered literature The subject. on this literature relevant Visegrad from Furthermore, countries section1999 till will 2006. this of anoverview provide of the rates in exchange movements for the study of bethe later applied to framework theoretical Framework Theoretical 1- Chapter theoretical framework is set, several other theoretical concepts, such as types of rates such types exchange as concepts, theoretical isset, several other framework theoretical currency are subject analysis that instands toseewhat tothe inorder thesis this behind different the developments will be influencing four exchangescrutinized3, thefactors rate tothe currencies with the regards of chapter In follow. will which theanalysis for framework theoretical the the provide will this section Czech inshifts thesupplyandfor will theexchange demand rate be in analyzed As section.this such, Republic, Slovakia, supply and demand services,by is it determined or price for goods Poland and Hungary. Before the Ryan C. Amacher and Holley H. Ulbrich, Neill Fuller, Lipsey et al., Exchange rate or foreign exchange rate is the value of one currency in terms of another a form will which in general rate exchange of determinants the discuss will section This 11 As Fuller explains, the exchange rate is the price of foreign currency. Therefore, as Therefore, currency. foreign price of isthe rate exchange the explains, AsFuller Fundamental Economics Economics (New HarperCollins,York: 1993), 813. (Merseyside: Tudor, 1990), 245. Principles of Economics (Cincinnati: South-Western Publishing Co., 13 Various factors that influence that factors Various 12 and insupply shifts and 6 CEU eTD Collection exchange rate “change freely and are determined by trading in the forex market.” by inthe forex trading “change freely and are determined exchange rate be determined.” to rate exchange rate. meanexchange nominal I the exchange rate, is made to Whenareference rate. real the exchange the impact of inflation on the movements in the exchange rate as well, which is incorporated in April 2007). 17 16 15 2007). (13 April 14 according of and fluctuates demand conditions the price, supply.” to this rate infreely competitive a withnointervention market, by central bank. Likeany the competitive is “set flexible) free (alsoas or known rate exchange Floating main three kinds. these in-between regimes many be are there however asitwill different shown, float, floating, andmanaged fixed, amount.” a given for market domestic the in than currency) foreign a into conversion (after abroad and canbepurchased services many more goods “how times indicates therefore, exchange rate, Thenominal rate.” exchange nominal via current the units domestic currency into converted is where latter level andthe level abroad, price ratio pricedefined as“the of domestic the the currency domestic the thatof units of number the “as rate can exchange nominal the of purchasea definition gives Banka) a unit of a given foreign currency.” explained. The real exchange rate be will andappreciation depreciation, regimes,and rate devaluation,revaluation, exchange is then Investopedia, “Floating Exchange Rate,” Lipsey(13 et al., 823. JohnSloman, ý eská Národní Banka, “Nominal and Real Exchange Rate,” Exchange Real and “Nominal Banka, Národní eská Exchange rate regime refers to “the system under which the government allows the Exchange rate can be either nominal or real. The Czech Central Bank ( Czech Central The real. or can nominal be either rate Exchange 14 In this thesis, the primary focus is on the nominal exchange rate, since I want to see Economics (New York: Harvester Wheatsheaf, 1991), 692. 15 There are three main types of exchange rate regimes, namely regimes, rate of exchange main types Therearethree 16 These types of ý 17 eská Narodní On the other 7 CEU eTD Collection 25 24 23 Politic. Sci. 22 Jovanovich, 1994),923. 21 2007). 20 as well as rather broad. rather as well as narrow very to set be can band the of width The adjusted. be can it floor, the or ceiling the either and lower band,while movement outside of bandthis isnot possible.in However, case ofhitting countries of Central and Eastern Europe, inmany is band,which used Exchangerate exchangerate. gradually adjustthe to government allows the currency to move only withinor evencertain to upperachieve an unofficial fluctuations prevent excessive intervenes to government butwherethe rates, flexible exchange of target exchange rate.” Crawlingis “a system floating dirty Managed or ittoo. influence to canintervene government the however, peg, on the other hand, allowsmarket; bythe is rate determined asystem partially exchange where the refer to regimes 19 18 rate. an increase foreign inthe exchange to refers Appreciation currency. the of revaluation devaluation appreciation depreciationand or and about can talkregime, we zone). dirty float, clear cut cases, rather band. moves only a narrow within exchangerate the there are several mixed value particular systems, such as meansishand,fixed as known exchange rate rate(also exchange ata that the pegged) managed float, also known as Fuller, 251. 6. Savastano, and Edwards Sloman, 693,698, 699. J. Lawrence Broz and Jeffry A. Frieden, “The Political Economy of International Monetary Relations,” Monetary International of Economy Political “The Frieden, A. Jeffry and Broz Lawrence J. William J. Baumol and AlanS. Blinder, Investopedia, “Fixed Exchange Rate,” (13 April John Beardshaw, John Lipsey et al., 824. 24 Depending on whether the country followingDependingisfloating country fixedwhether rate exchange the on orthe 4 (2001): 322. 21 ortarget zones, crawling pegsandbands. 18 Economics: astudent's guide to another country’s currency by the government or central bank. central or government the by currency country’s another to 23 This type of exchange is rate alsofloating called within aband (target Economics: principles and policy (London: Pitman, 1992), 593. 20 Today, most countries do not follow these 22 As Sloman explains, intermediate explains, AsSloman (New York: Harcourt Brace 25 It occurs when 19 This way, This Annu. Rev. Annu. 8 CEU eTD Collection 31 30 29 28 27 26 rate. exchange of foreign currency.” units more buy can currency own its of a unit that so “change currency nation’s of rates exchange price levels, capital movements, and structural changes. a rise in the domestic price of exports, a rise in the foreign price of imports, changes in the overall on. analysislater here be to willbe and will important ones subject considered most as such the influence rate, exchange that factors many however, Thereare, in rates. exchange nowcurrencies be in in will discussed general. shifts demandand supply The causethechanges currency explainof four different factorsthe patterns causing in Visegradcountries, movements now be set up, which will later be used for further theanalysis. official value. In order to later official value isof a currency On calleddevaluation. hand,revaluation is increase other the in an analyze what can competitiveness.” foreign goods. As such, exports decrease, while imports increase “as a result of change in population, technology, input cost and availability, tariffs, quotas, and nontariff barriers, and and nontariff and quotas, cost tariffs, input availability, population, technology, andpreferences, tastes rates, interest relative incomes, levels, relative price inrelative changes andfactors causeshifts similar that in supply and demandforeignmore specifically for exchange, Lipsey et al., 826-827. Fuller, 250. Baumol and Blinder, 902. Broz and Frieden, 331. Fuller, 251. Baumol and Blinder, 902. Lipsey and others enumerate several factors that cause changes in exchange rates, namely, As some of the concepts have been explained and defined, the theoretical framework can framework theoretical the defined, and explained been have concepts the of some As 27 During real appreciation, domestic goods become During goods more to real domestic relative expensive appreciation, 29 28 Both reduction and rise of the par value are deliberate decisions. If, however, one deals with the fixed exchange rate regime, reduction in the in reduction regime, rate exchange fixed the with deals one however, If, 26 Depreciation is then the opposite, meaning it refers to a fall in the 31 Amacher and Ulbrich mention the same the mention Ulbrich and Amacher 30 9 CEU eTD Collection December2006). (12 36 35 34 33 32 unchanged. remain will rate exchange equilibrium the currency will fall. Byanalogy,if pricethe level in changes both countries by an equal percentage, A’s of price A)B), the (country in than isin other the (country onecountry higher rate inflation equilibrium of this currency will fall, orin other words depreciate in value. inflationundergoing will shift left,to the whilethesupply willcurve shift right.to the The new country the of for currency curve demand the As such, higher prices. foreigners at to attractive less become exports hand, On the goods. other domestic to ascompared more attractive therefore, This is because astheprice become levelin imports increases, country one lessexpensiveand is in of experiencedresult country valueof the the inflation. the depreciation that currency the of exchange rate. determinant movements. exchange isonthe factors of rate these impact subsidies. export and foreign price of imports on the currency movement. The result of this impact is dependent on growth. ratherthan economic inflation reflectrates interest whenhigh to depreciate performance and growth where concerns about inflation are mild. On the contrary, currency tends arebeby high but economic thisrates caused must wheninterest appreciates positive currency Therefore, latter. the impact on hasan former wherethe rates, interest and inflation Trading Markets, “Part V: What Influences Forex Prices?” Forex Influences What V: “Part Markets, Trading Lipsey et al., 826. Lipsey et al., 826. Amacher and Ulbrich, 915. Amacher and Ulbrich, 915. Similarly, if there is inflation in both countries, only the rates are unequal, meaning the meaning unequal, are rates the only countries, both in inflation is there if Similarly, significant is most the levels in change prices It is that (inflation) argued often relative Lipsey and others also explain what impact has the rise in the domestic price of exports 32 I will now look at each of these factors separately in order to see what the 33 When inflation occurs in one country but not in the other, the other, in the not but country in one occurs inflation When 35 Some stress the interconnection of interconnection the stress Some 34 36 10 CEU eTD Collection exchange rate tends to depreciate, while when the net balance on the current account closes with closes account thecurrent on balance net the while when depreciate, to tends rate exchange 39 38 37 weakcurrency. arather indicates however, deficit, of payment balance A appreciate. would rate exchange the therefore, currency; opportunities and the long-run valueits of currency.” movements aresimilarly by“long-term another affected about country’sexpectations profit capital Long-term depreciate. to is thought rate exchange wherethe one the to not and appreciate to is expected rate exchange whose acountry to moves capital since arole, play expectations also Here rate. country’s exchange made about are speculations where capital, speculative so-called the and movements capital short-term mostly concerns This inflation. high reflect donot rates interest high assuming moves country, tothis in capital more the rate a country, The interest rates. higherthe tointerest connected isalsoclosely movement Capital depreciates. effect is appreciation of this currency. On the other hand, the capital-exporting country’s currency the country, one to moves capital as the that explain others and Lipsey appreciate. or depreciate itto depreciate. which right, causes move tothe On the other hand, if the demand left. tothe moves curve supply sincethe appreciate currency will of our supplycurve elastic, the for these imports is inelastic,the the demandsupply of willour currency shift will will On hand, other the ifdepreciate. to is since currency demand inelastic, the the appreciate, will the right. When the demandthe currency curveforthe exportingof foreign will country the shiftto leftthe and currency this price of importsthe elasticity of the demand. In case the domesticrises price of exports rises, and the demand is elastic, and the demand is Fuller, 246. Lipsey et al., 827. Lipsey et al., 826. Furthermore, abalance of surpluspayments implies a high demandfor this country’s either to can cause currency that factor important areanother movements Capital 39 If the net balance on the current account shows deficit, shows account current the on balance net the If 37 38 11 CEU eTD Collection (12 December2006). 47 it since grants some influence country an important insurance exchangerate, kind of on the that Therefore, the ratingby, of for debt country’s example, Standard& Moody’s or Poor’s alsohas itsinflation, infor spending, causes depreciate. which encourages turn currency the to promotions can foreignalso shiftfor curves the exchange. subsidies and export for Similarly, foreign thedemandexchange. canmove curve barriers imposedvarious restrictionsby andtrade among on tariffs,nontariff governments, quotas, others andmove can also income demand the foreign supply for and exchange.curve Furthermore, in will currency result appreciation. causea alsocertain incurrency shiftwhich will for this demand curve the rightward, currency 46 45 44 43 December2006). (12 42 country,one will this itsof cause depreciation currency. its movesfor demand itappreciation asthe of currency, rightward. leads to improve,Asconsumers’them, demandbeing toward country’s shifts products which technology. of them one advantage,” of comparative pattern the “affects that everything encompass changes currency. exporters’ the into currency their convert to need foreigners since increased 41 Strategies for the New World Market anincreasesurplus in ofa leadsto strength the currency. 40 willa surplus, most rate exchange likely appreciate. Forex Blog,“Factors which influence exchange rate,” 16 February 2005, Joseph E. Stiglitz, Amacher and Ulbrich, 914, 915. Fuller, 246. Lipsey et al., 827. Prices?” Forex Influences What V: “Part Markets. Trading Valentino Piana, “Exchange Rate,” “Exchange Piana, Valentino Dimitris N. Chorafas, Public government whichor debt, is by borrowing created by pay money to government Structural Structural can changes also shift demand the and supply for foreign exchange. Structural Economics TreasuryOperations Foreign and the Challenge: Exchange AGuide Riskto Management (New York: Norton, 1993), 950. (New York: John Wiley & Sons, Inc., 1992), 111. Economics Web Institute 44 Amacher and Ulbrich note that changes in taste, population, in taste, changes that note Ulbrich and Amacher , 2001,, (12 April 2007) 40 Concerning trade balance, Concerning trade running trade 46 45 Concerning increaseinincomethe in 41 This is because the demand is 43 Preferences a for 42 12 47 CEU eTD Collection 52 (12 December2006). 51 (12 December2006). 50 December2006). 49 (12 December2006). 48 variables. as much as economic market themoney influence andcan meetings, andpresentations summits various place pressconferences, during take or political stability of a country.With regards to the statements of political figures, these usually Withinfactor. notions various this, are included made such as elections, statements by politicians obligations. its on default not will the situation and events taking place in the region (for example the Visegrad region). Visegrad the example (for region in the place taking events and situation the be tend stronger. political situation to stable. politically also but economically only not relatively fast in case of rising aversion towards the emerging markets or in or are there markets thecase emerging towards in aversion fastof rising case relatively from country the candepart iswhich capital that the capital, “quick” so-called of volume the the is because This were weakening. the region of currencies the when sameway the always react not did it however, region, the of currencies other the with together strengthened years few region. the of currencies other the on impact itcountry, can enjoy its benefits the being of currency it pulled,however not have thesame does isasmall Slovakia fact tothe that Due this by anexample. Letmeillustrate straightforward. alwaysis sinceas not effect be the to careful though, has one as well.region Here in the currencies other the all pulls this strengthens, country one of currency when that means Ibid. TV TA3, “Pre Jason Van Bergen, “Forces Behind Exchange Rates,” 7May 2004, (12 rates,” exchange oncurrency “Influence ICForex, Jason Van Bergen, “Forces Behind Exchange Rates,” 7May 2004, Besides economic and political factors, other aspects can also influence currency such as such influence cancurrency also other aspects factors, political and Besides economic þ o sa koruna posil Ė uje a dokedy ešte bude,” Analýzy a trendy, 24 October 2006, 48 Another important factor influencing currency is the political is the currency influencing factor important Another 52 On the other hand, the Czech koruna in the past the in koruna Czech the hand, other the On 50 Therefore, currencies of countries with stable with of currencies countries Therefore, 49 Investors seek countries, which are 51 This 13 CEU eTD Collection 2006. 54 (20 April 2007). 53 will be revealed, which this thesis aims to fill. whereby gap willbereviewedandanalyzed, on topic literature this Before isdone, this existing countries. Visegrad four the of patterns currency two the explain can they whether see to order of factors depreciation.these be Themost important will 3in selected andappliedin chapter of the foreign more precisely can influencedemand supply andthe that exchangerate, the factors possible exchange, which in currency. the whichweakens down, thedemand goes rates, interest turn resultsturn in leadseither in which increasing, to is also for this currency demand the rates, interest reference the increasing strengtheningappreciationby precisely, More rate. exchange the theCBinfluences rates, interest reference adjusting ofof a thecurrency.by Moreover, currency, the respectively. appreciate or can depreciate CB the liquidity, currency On theor Furthermore, byincreasingordecreasing exchangeof rate. themovementwhich caninfluence itsotherstatement, a make can CB the of hand, governor the that means This interference. verbal of possibility by decreasingis a CBcan the this. Firstly,there several how ways do are There state. of particular the the reference isinfluenced deliberately. Central Bank(CB)caninfluencewhat The currency happeningto the be can movements rate exchange how ways other however, are, There control. to hard often are Visegradthe countries. inis lower problems ina Czech the in significantly than particular country, Republic restof the Alžbeta Záhumenská, Chief Dealer at the Money Market of a commercial bank, Personal Interview, 20 November 20 Interview, Personal bank, commercial ofa Market Money the at Dealer Chief Záhumenská, Alžbeta ý eská Spo This section, which constitutes the theoretical framework of this thesis, discussed several influencingThe factors exchange foreign ratediscussed now are until oneswhich the Ĝ itelna, “Ekonomika pod Lupou,” Ekonomické a strategické analýzy (1 53 54 st Quarter 2007): 11, 14 CEU eTD Collection 55 performance, macroeconomic on the rate exchange impact nominal of the the examine that studies ison focus the However, and performance. economic rate nominal exchange between relationship the on conducted review research among others onthis authors The topic. literature existing of criticisms as well as overview a thorough and rates exchange to related issues several Economies: What Do We Know? What Do We Need to Know?” provide currencies. these between trends different the explains a to seewhat rates detailed analysisexchange their of analysis a comparative of conduct will I and countries Visegrad the of currencies four on concentrate however, will, I yen. the or dollar the euro, the as such currencies, major usually focuses the andon rates currencies on research exchange conducted Moreover, thesis. studies, however, explain in the movements nominal the whichexchange rate, is the task of this many Not turn. in be discussed will These nominal). and real (both rates in exchange movements predict intransition; for countries is best the regimes rate exchange of the which assess countries; in certain rate exchange real of development the analyze variable; other some and rate exchange between relationship the examine that studies others among research, of categories several to be grouped literature could Theexisting they deserve. receive the attention not hand, did show which of haveaspects exchange rate beenthoroughly analyzed andwhich, otherthe on 1.2 Literature review rates Visegradof fourthe rates countries. exchange the affect determinants which relations, namely opposite atthe looks present thesis the Edwards and Savastano, 6. Savastano, and Edwards Sebastian Edwards and Miguel A. Savastanoin their article “Exchange Rates in Emerging This section will provide a brief literature review in the field of exchange rates in reviewfieldThis section literature in a brief will the rates to of provide exchange order 55 while 15 CEU eTD Collection (June (June 1998):1- 25. account. current the anditimproves atthe same time rate real of exchange the depreciation a temporary only causes innovation, monetary example for shock, hand, atemporary other Onthe insignificant. is statistically account current on effect whereasthe rate, exchange a permanent shock, such as technology innovation, results in apermanent appreciation of the real countries (Canada, France, Germany, Italy, Japan,the UK and the US). The authors conclude that by Menzie David Chinn and Jaewoo Lee. Their data contains information on seven OECD Analysis of Major Currencies,” 57 56 flowsdiscouraged.” Trade arefound also toinfluence thecurrency. to bond investors who send themoney out of the country as a result becoming of psychologically “resultin value,inflation future signal losses since and with currency they associated negatively are rates interest long-term the hand, other the On currency. the for demand the increase inturn which investments, for incentives creates this since positively, currency the influence inflation low of forecasts andrelatively infuture rates the interest higher of expectations Similarly, values. currency the and rates interest short-term the between relationship a positive is that there suggest Theresults independentvariables. is of end alist there month and at the of each alog-linearconstructs variable model, the dependent where is logthe of DM/$exchangethe rate years. 30 for (DM)using The betweenauthor data Mark German USdollarthe rate the and exchange real the influences what examines who Murphy Austin by asresearch such currencies, majorof the rate of real the exchange determinants the on focus Some studies rate. real exchange Menzie David Chinn and Jaewoo Lee, “The Current Account and the Real Exchange Rate: A Structural VAR A Structural Rate: Exchange Real the and Account Current “The Lee, Jaewoo and Chinn David Menzie 1-7. Murphy, The explanation of behavior of real exchange rate and current account balance is sought A vast amount of literature on the exchange rate concentrates on the determinants of the of determinants the on concentrates rate exchange the on literature of amount vast A Working Paper 395, Department of Economics, University of California Santa Cruz, Santa California of University of Economics, Department 395, 56 57 16 CEU eTD Collection 59 58 Romania. While the exchange rate movements (appreciation) are rather stable in Poland, and the Slovak and Republics Bulgaria andaweakappreciation in Hungary, and Poland in Czech the rate exchange of real appreciation is real is astrong there that conclusion The 1990s. Bulgaria, Czech the Republic, Hungary, Poland, Romania andSlovakia atthe beginning of the in situation rate real exchange examines the Theauthor Liargovas. by scrutinized Panagiotis productivity shocks. technology, and inendowment, changes with is associated thereal shock rate, exchange While thenominal isshock caused bynominal money supply devaluationshocks or of the shocks, fluctuations whereas real rate inHungary mostlyexchange influencedare by shocks. real nominal by influenced largely are in Poland movements rate exchange real that find they shocks, nominal and real to assigned be can that those into movements price and rate exchange real from 1999 for Hungary 1990 to and Poland astructural model. byusing By separatingVAR the ranging data monthly analyze authors The Kutan. M. Ali and Dibooglu Selahattin by fluctuation in Slovakia. rate exchange hand, other the andspending/GDP ratio stockprice deficit the thereal influence index positively M2 (money USTreasury bill supply),the country inflationrisk,rate, andOn expected the rate. Mundell-Fleming model, authorfinds the thatreal exchange is rate negatively influenced by real extended the applying By Slovakia. for fluctuations rate exchange real the inspects who Hsing by One suchstudy was conducted Yu rates. might influence that real their exchange factors Dibooglu andKutan, 257-275. Hsing, 289-292. Increasing amount of literature has been recently written on transition countries and Hungary and Poland are compared in terms of determinantsthe of their real exchange rate Six transition countries and the determinants of their real exchange rate movements are 59 58 17 CEU eTD Collection rates out of sample.” outof rates chosen bemodels…[should] usedon is model information however, basis If,the bestof available.” the setof from model various the best“the hold, forthis to Inorder exchange rates.” five out of for three accuracy degreeof with movements a remarkable rate exchange future 2003Q3 andfind“the that information inembedded economicfundamentalsthe can explain US dollar from usefiveand balance.major 1977Q1 till The trade authors exchangerates the differential rates interest foreign assets, amongnet others too, are used determination theory rate from exchange the variables other fundamentals, monetary Besides standard exchange rates. the predict can fundamental economic whether study example, for Valente, Giorgio and Sarno Lucio 62 61 60 characteristics. theopposite with are associated then Peggers pattern. trade integration, an inflation financial international ahigh of degree sector, trade smallforeign large size,arelatively rate that differs a These are: floaters. with which areconnected fivefeatures are there that concludes and problem from the world averageisbetween) thebest aparticular for Robert practice H. country. investigated Heller this also and a well diversified foreign inflows also stand behind the real appreciation of exchange rate in the Czech Republic. movementsexchange rate in Hungary and Polandare FDI inflows andincreases. cost LargeFDI of determinants important Most rate. exchange of movements cyclical have also Hungary and Romania in Bulgaria and Romania. volatile they are CzechRepublic, the and Slovakia Sarno and Valente, 1-38. Heller, 308-321. Liargovas, 299-318. Another group of studies focuses on possible forecasting on exchange rate movements. rate exchange on forecasting possible on focuses studies of group Another Several studies analyze which of the possible exchange rate regimesin-Several studiesanalyze floating possibleexchange whichof the rate or (fixed, ex ante , “the same set of economic fundamentals is not useful in forecasting exchange forecasting in useful not is fundamentals economic of set same “the , 62 61 60 18 CEU eTD Collection Pape/01/120 63 Hungary andand Sloveniagood both badnews increase volatility the rate. of exchange Latvia,Czech Republic, and newsPoland good increasesvolatility badand news decreasesit. In news inWhereasit,Slovenia. volatility in good and bad newsincreases decreases Slovakia, the and Slovakia in large Hungary, is rather rate exchange the of news onthevolatility of The effect country. inthis volatility rate exchange the lower the economy, the more open the that suggest is model Thefindings applied. heteroskedasticity (TARCH) conditional threshold autoregressive the this, do to order In rate. exchange of movements the on regime rate exchange the and factor, “news” of economy, the impactan of the openness the particularly Heexamines Slovenia. and Slovakia, Poland, namelythe CzechRepublic, Latvia, Hungary, countries, European of volatility2004 forperiodof sources the inthe exchange rate 1999 to sixCentral and Eastern of and economy. the openness external debt Republic Poland, namely and ininflation,differences shares offoreign size currency deposits, of Czech of the transition accompanied respective the that differences the to is traced volatility in the 2000.Thetill difference the period euroduring 1997 the of both USdollarthe and against countries of aforementioned the rate exchange the studies author The early dollarization. is with economies, thelatter European byPoland’s caused integrated whereas financially other early rather became CzechRepublic the is Theformer euro. because the against zloty Polish the of rate exchange the for higher is volatility the in Poland while dollar, US the against koruna Czech of the rate exchange the of is volatility higher there finds that Theauthor exchange rates. four of volatility studied Morales Armando influence them. whichcan factors, andrates the Armando Morales, “CzechKoruna and Polish Zloty: Spot and Currency OptionVolatility Patterns,” One study is by One the presentone is study that to Stan similar conducted review one discussedliterature Final nominal with isthe deals that exchange inthis group (August 2001): 1-29, (3 May 2007). 63 þ ík. analyzes Theauthor IMF Working 19 CEU eTD Collection to similarities shared by these countries. Furthermore, in the present thesis the determinants of the due studied.ThisthesistheVisegradregion focusessolely determinants of rate on exchange the andthe underexamination and countries the period namely the aspects, MacDonald inseveral exchangeon rates. large Priceratioimpact has rather industrial and nominal exchange the rates. between production relationship is a negative small. is There rate rather interest of effect The rate. exchange on prices.producer Money supply turnsouttobe significantin model,the importanteffect having industrialinterest andstock (M2), production, rates, consumerof to prices deposit the ratio 2002. The useforauthors monthly nominal data exchange ratesvis-à-vis money the euro, the March Theperiod covered by is in this 1994 to study September movements rates. exchange the explain monetary to the approach They the estimator. Pooledadopt Mean Group the Estimator, methods, such as theDynamicLeast Square estimator, Fullythe Square Modified Least Czech the Romania,Republic, andSlovenia Slovakia by Hungary, Poland, several cointegration on data analyze Theauthors panel Europe. and Eastern inCentral of countries the exchange rate noandare identified either. trends currencies of developments the between drawn is connection no However, currencies. individual on impact this of size the and determinants particular of negative, or positive either impact, 65 64 movements, the period and the countries studied.Moreover, Stan rate of exchange thedeterminants mostly concerning differences, significant still are there thesis, volatility. rate exchange impacton havesignificant intheregimes major regime, changes rate Concerning theexchange Crespo-Cuaresma, Fidrmuc and MacDonald, 1-23. Stan þ ík, 1-27. A study by Crespo-Cuaresma, Fidrmuc andMacDonald focuses also on nominal the 65 This thesis differsfrom study the by Crespo-Cuaresma, Fidrmuc and 64 Despite the fact Despite the thatthis one close study conductedin tothe gets this þ ík’s analysis only discusses the 20 CEU eTD Collection these four countries after WWI and continues until now. until continues and WWI after countries four these of establishment the back to canbetraced developments of currency patterns two the also that show that the Visegrad countries have similareconomicfrom development 1918 until present and thesis will add value to the current academic debate on the topic of exchange rates. Chapter 2will show present the hasthat reveal existing to gapand beenbriefly exchange rates to the reviewed on literature 3.Secondly, applied inchapter be which will ofexchangerates determinants countries. in these developments rate exchange nominal the with of the previous research, as no comparative analysis so far has been undertaken which would deal sum developments. To section thisup, this showedthat hasbeen question addressedby not any currency thedifferent stand behind see whichfactors areanalyzedto rates nominal exchange This chapter served twofold purposes. Firstly, it drew a theoretical framework of framework theoretical itdrew a Firstly, purposes. servedtwofold This chapter 21 CEU eTD Collection performance between the twowars 66 Present 2.1 Historical Economic Development of the Visegrad Countries: From 1919 until andin present. past the the development rate also exchange the andlater similarities economic the discuss first will section in This reality. some expectation as to the similar currency developments as well, even though this is not the case is there andtherefore, and aresimilar were four Visegrad the indicators, macroeconomic of terms economic development. This will be discussed similarhistory. Notonly inbutalsotoday the Visegrad past, the countries shared similar in this section, since it needs to be shown that in Development Currency and Economic Historical 2- Chapter embrace of socialism suggest a cross-country rather than a national than rather a cross-country national treatment.” a suggest embracesocialism of subsequent interwar“geographic the and common problems further claims propinquity, that Eastern Europe 1919-1975 as a region “has enough in common to justify unitary analysis.” The author shortinterruption during WWII, the economic similarities are apparent even though Slovakia was to a brief discussion of economic development of the Visegrad region. turn now will I developments. economic shared despite different, is which development currency their of in terms four Visegrad the compares which thesis, in this used also is justification Michael Charles Kaser, ed., Kaser, Charles Michael There is more that connects the Visegrad countries than just their geographic proximity or proximity their just geographic than countries the Visegrad connects is more that There As Michael Charles Kaser notes in his book As the Czech and the Slovak republics constituted one state from 1919 until 1993 with a with from 1993 1919 until state one constituted republics andSlovak the As theCzech , which provides a detailed economic history seven of Eastern countries,European The EconomicHistory ofEastern1919-1975. Europe I: Vol.Economic structureand (Oxford: ClarendonPress, 1985), 2-3. The Economic History of Eastern Europe The Economic Historyof 66 This 22 CEU eTD Collection (New Routledge,York: 2006), 185. 67 region Source: David Turnock, lands within Czechoslovakia. less Czech than developed the always considered Figure1: States of EastCentral Europe afterthe First World War Empire. German the and Empire Austro-Hungarian the from came territory its the largest part of the Polish territory used to be under the Russian empire and the smaller parts of seen, Czechoslovakia andHungary of were previouslyparts Austro-Hungarianthe Empire, while whereis it which indicated empire the countriesin belonged to prewarperiod.the As itcan be considerable. are three countries these between similarities however, period; theinterwar mainly during countries, two theother than better always did Czechoslovakia that conclude will I countries, of history these economic the of comparison the From Poland. and Hungary Czechoslovakia, historical comparison until 1993 willnaturally be namely onlyamong three states, the and similar as considered be will Slovakia and lands Czech the of development economic David Turnock, (New York: Routledge, 2006), 172. Figure 1 below displays a map of Central and Eastern Europe after the First World War, The Economy ofEast CentralEurope, 1815-1989: stages oftransformation a peripheralin region The EconomyEast of Central Europe,1815-1989: stagesoftransformation aperipheral in 67 Despite this, the 23 CEU eTD Collection 74 Ashgate, 1997), 12. 73 72 71 70 69 1997), 24. Teichova, ed., Teichova, 68 states.” successor allthe economy of “hadstrongest the Czechoslovakia that stresses Prucha Václav countries. two other the than favorable more Czechoslovakia point, starting had different countries isCzechoslovakia doing wasalways alittlethan her better This becauseeachof neighbors. the economies,” by hardest wasslower agricultural of inthepredominantly andrecovery hitthan crisis the the until 1929.” showed surpluses.“real both Furthermore, andwages personalconsumption grew continuously Czechoslovakia than in Austria until 1929. Also the balance of foreign trade for Czechoslovakia situation: the Prucha describes industrial areas.” Eastern Europe. Turnock, 176. Alice Teichova, ed., Teichova, Alice Ibid, 25. Prucha, 24. Turnock, 184. Kaser, Volume I, 6. Václav Prucha, “Continuity Discontinuityand the in Economic Development of Czechoslovakia 1918-91 inAlice The economic development of the Visegrad countries is very similar; however, very similar; is countries Visegrad of the development The economic Prucha showsfortune from the revaluation of the Czechoslovak currency. crowns Czechoslovak later bought and Czechoslovakia thatinternational credit. Business circles in according and in island won stability an Central Europe of Czechoslovakia wasconsidered government Czechoslovak the of approach energetic the the Czechoslovakia, in around countries hyperinflation startling and chaos economic liability, to political of time the During tostatistics, economic policy met economic a favourable responsedevelopment in the was stronger in 72 73 Central Europe inthe Twentieth Century: AnEconomicHistory Perspective The turning point came with the Great Depression, and Czechoslovakia “was one sinceitwas heavily dependentonits exports. 69 70 68 This is because Czechoslovakia “inherited and Thisis strong largely because Czechoslovakia undamaged As such, Czechoslovakia soon attained credibility and history of success. Central Europe in the Twentieth Century: An Economic History Perspective Kaser also notes that it was the most industrialized state in Central and Entente countries…exported capital countries…exported to 71 74 en masse David Turnock notes Davidnotes Turnock that , hoping to make a Entente (Aldershot: Ashgate, (Aldershot: countries. 24 CEU eTD Collection 79 wars The Economic History of Eastern Europe 1919-1975.Vol. I: Economic structure and performance between the two 78 Perspective ed., Teichova, Alice in Retrospect” in Experiment 77 76 75 while italso Habsburg debt, of for pre-war the part explains, responsible Hungary was Turnock anew well currency.as introduced powerfor when theand 1924as newgovernment to Grabski came of achieved abalancedbudget million times. Excessive impaired of printing new money the situation, which was only changed 2.4 increased as prices hyperinflation experienced also Poland countries, other to level. Similarly attain its prewarindustrial right industrialaway.output fell In 35% of 1920-1, output to 1913 the difficulties.” economic interwar Europe’s as“the primeeast causeof economists isbymany customs area,”which regarded On directly hand, other the by “wasnot Poland affected break-upof the Austro-Hungarian the compacteither. not was area its economic As such, former empires. of three of parts composed development. economic Munich Agreementand subsequentdivision of Czechoslovakia aswell as WWIIhampered its in The and imports, increasingthetension thus abroad stimulated balanceof the payments.” products Itimpaired“theCzechoslovak of negative competitiveness had effects. currency also firstin onlyin wasenacted was fixed goldhigh. strong the 1929and to 1934.The devaluation It after1936. such, it slowly recovered Czechoslovakia onlyhadmodest borrowings and continued topay its even debts during crisis. As Turnock, 182, 183. ed., Kaser, Charles Michael in Wars” the between Region ofthe Characteristics “General Radice, Albert Edward Henryk Szlajfer, “Promise, Failure and Prospects of Economic Nationalism in Poland: The Communist Prucha, 26, 27. Turnock, 185. (Oxford: ClarendonPress, 1985), 33-34. The Hungarian starting point was again a little different from the previous two cases.As from two previous the little different a again was point starting The Hungarian inPoland its became independent asalready 1918. However, noted, territory was (Aldershot:Ashgate, 1997), 45. 76 78 Turnock notes that once WWI was over, Poland could not 79 75 Despite this, Prucha writes, the exchange rate was rather was rate exchange the writes, Prucha this, Despite Central Europe in theTwentieth Century: An EconomicHistory 25 77 CEU eTD Collection 82 and reconstruction 81 80 rangedduring between55and65 and Poland the interwarInHungary thispercentage period. agriculture wasdependenton of that indicatingpopulation percentage the concerning thevariable Ashgate, 1997), 6. ed., Teichova, Alice Source: hyperinflation led increased23 as prices This to hadobligations. reparation 000 times and bauxite exports, itandbauxite exports, also adevastating depression,” “suffered and its supervision of Hungary’s finances. stabilization currencythe of aboutonly was brought by loan the by granted Leaguethe of Nations Table 1: National Income perHead (in 1937 US $) diminishing. gradually were countries among the differences howeverin the highest Czechoslovakia; headitbelow,is income wasinallyears 1937)the that (1920,1929and national clear per three 1 Table From very similar. economically were countries these of group, the leader the being despite Czechoslovakia toseethat in period order interwar for the indicators macroeconomic Turnock, 180. Michael Charles Kaser, ed., Kaser, Charles Michael Turnock, 180. Based on the work of Teichova, another comparison of the three countries can be drawn can countries three the of comparison another Teichova, of work the on Based I will now turn to comparison of the Visegrad countries with regards to some (Oxford: Clarendon Press, 1986), 121,132. Central Europe in the Twentieth Century: An Economic History Perspective The Economic History of Eastern Europe 1919-1975. Vol. II: Interwar policy,the War 81 Since Hungary was greatly dependent on Since Hungarywasgreatly agriculture dependent on 82 as every country in the region. 80 (Aldershot: and the 26 CEU eTD Collection per capita in 1960 was half of that of the US (50%). alike forHungary and Poland (34%percentand 36%,respectively),while Czechoslovakia’s GNP the previous columns, itcan be seen that GNP per capita as a percentage of that of the USis very is themean method lastwhichever estimation used.Looking atthe column, whichrepresents of percapita, GNP has it thehighest since of three isthebestamong the them, performance Czechoslovakia’s however capita; in of GNP per terms arecomparable Visegrad countries the United States (US) by using four differentmethods of estimation. Again, itcan be concluded that annually. 7 6 percentannually,percent Czechoslovakia and Hungary grewat grew at Poland while similarwere alsovery among periodthe For 1970, countries. of 1950till three these as different starting (such factors other into account similar taking very as relatively beconsidered still can numbers points, different ratio in percenthighestof Czechoslovakia. and (83 1983) the of agriculture toin littleinhigher Poland 1983) of Hungary, (78percent of 1983 in reached73percent 1947,this industry, and others). Growth rates 86 85 84 83 half first was replaced by during stagnation the economic of 1960s. the in 1950s development economic rapid in that Czechoslovakia notes Prucha fate. lesssimilar or WesternEurope. the in which activeengagedin of population wasaboutthe same was economically as agriculture, percent 30 lessthan noted, previously as industrialized, more was Czechoslovakia Since percent. Kaser, Volume I, 9. Kaser, Volume I, 8. Prucha, 31. 7. Teichova, Table 2 below illustrates per as apercentage GNPinyear capita 1960 of Table 2belowillustrates of that the After WWII with the establishment of communism, all the Visegrad countries had more had countries Visegrad the all communism, of establishment the with WWII After 86 83 85 Despite minor divergence, these minor divergence, Despite 84 Concerningnetincome 27 CEU eTD Collection and analyzes several statistics in order to see what the general trend in the Visegrad countries is. in toseewhatgeneral the trend Visegradcountries inorder statistics the and several analyzes Visegradthe of and member countries consults various oldthe EU.The the author states reports of also convergence but the countries, Visegrad among the convergence only of possibility the of all four countries in Visegradthe region is generally considered tobe very alike. development economic the shown, be will it as Nevertheless, Slovakia. and Republic Czech the fallthe communism,of independent1 January into on 1993, Czechoslovakia split two countries, 87 foodstuffs even at a high level of food consumption, and a low level of foreign debt.” comparatively highfull in level education, self-sufficiency of theproduction of temperate-zone former socialist “having countries ahigher-performance economy, ahigherstandardliving, of a beCzechoslovakia wasagain alittle1989, to considered ahead other further the compared to Europe that were previously under the influence of thestructure and performance between the twowars USSR.ed., Kaser, Charles Michael Source: As was the case after WWI, in US=100 index prices: 1958 at US dollar Table 2: Per capita GNP in 1960 as percent of that of the United States Prucha, 33-34. Tamás Réti in his article “Visegrad Economies: Chance of Convergence,” discusses not discusses Convergence,” Chance of Economies: “Visegrad articlein Tamás Réti his The fall of communism represented a fresh start for the countries in Central Eastern and in Central thecountries for start fresh a represented ofcommunism The fall The Economic History of Eastern Europe 1919-1975.Vol. 1: Economic (Oxford: ClarendonPress, 1985), 13. 87 Soon after Soon 28 CEU eTD Collection 4. in a 2003 as debt government general is variable the also caseconcerning averages. This the distinguishable easily form a category four Visegrad The countries. Visegrad forall the is similar GDP rather from of 2003 asapercentage years to forbalances 2000 government general averageof the clearthat the Baltic From Table is 3 below it alsofourin indicators. are macroeconomic of Visegrad similar terms states or Slovenia,neoliberalism.’ ‘embedded whichin many countries aresignificant they havein label authors aspects, all what the common as can also be seen from the group towards Transnational Capitalism in Central-Eastern Europe,” Forthcoming 89 conference 88 and marketization between compromise forby search their countries aredistinguished and “the as Visegrad Baltic Slovenia, to the states as inopposed group one together by authors consider arethe countries four asall similar features more than different. similar generally are Visegrad the countries variables, macroeconomic in terms of bethat said itcan Report Convergence the of conclusions Based on the high. very was rate unemployment the however, deficit, account current low and growth export strong rate, growth fast also had economy Slovak The high. rather been has rate unemployment the however, rate; growth fast by characterized is economy Polish The too. country, the plagues inflation Moreover, debt. public the and deficit fiscal large rather also has economy Hungarian large. The were its deficit fiscal external deficitand low by inflation, was characterized economy Czech the while this, illustrate To lessidentical.” more or imbalances are but different are advantages their comparative arecomparable, performance economic countries four Visegrad 2004by “the according ConvergenceCentral the Bank, He concludes thatReport European the to Dorothee Bohle and Bela Greskovits, “Neoliberalism, Embedded Neoliberalism, and Neocorporatism: Paths Neocorporatism: and Neoliberalism, Embedded “Neoliberalism, Greskovits, Bela and Bohle Dorothee Tamás Réti, “Visegrad Economies: Chances of Convergence,” Working Paper No. 7, Paper presented atthe presented Paper No. 7, Paper Working ofConvergence,” Chances Economies: “Visegrad Réti, Tamás Dorothee Bohle and Bela Greskovits also suggest that the Visegrad sharemany the Bohle alsosuggestthat countries Dorothee and Bela Greskovits Perspectives of Visegrad Co-operation in theContext of the EU Membership 89 Furthermore, the authors provide some data to show the that to some provide data Furthermore, the authors both kinds of social protection.” Since the Visegrad social protection.” kinds of West European Politics , Brno 24-25, 2004, , (May, 2007): 1- 4-5. 29 88 CEU eTD Collection comparison of the averages of GDP per capita for thisperiod. capita GDP per of of averages the comparison the by confirmed is also This comparable. is region Visegrad the indicators, macroeconomic concerning it that can be of conclude per capita, in GDP terms isstill a leader CzechRepublic the that fact the diminish despite and to began difference the from 2003 onwards However, region. than in higher GDPpercapita restof hadslightly the countries Czech Republic the Visegrad the performance four isvery For 2002, of period indicator, of the Visegrad similar. the 1999 to the periodthe 2006.of 1999 to Itisfrom clear tableinthe that of terms macroeconomic this towards Transnational Capitalism in Central-Eastern Europe,” Forthcoming Source: Dorothee Bohle and Bela Greskovits, “Neoliberalism, Embedded Neoliberalism, and Neocorporatism: Paths Table 3: Macroeconomicstability countries. Visegrad governmentexpenditures from 2000 to2003as an average of GDP wereaboutthesame in all general Finally, the same. the about score countries Visegrad the where of GDP, percentage Slovenia -5,7 Visegrád average Republic Slovak Poland Hungary Republic Czech average Baltic Lithuania Latvia Estonia Table 4 below showsthe GDP percapita of Visegradthe countries inmillionsfor of euro -2,6 -6,9 -3,4 -5,4 -7,2 -0,6 -2,1 -2,1 +2,3 average % of GDP) (2000-03 balances government General 29,3 42,6 45,3 57,4 38,8 13,5 21,9 13,4 5,3 GDP) % of(2003, debt government General 45,9 West European 48,1 50,4 42,9 49,8 42,4 34,3 31,7 35,7 35,5 % of GDP) average (2000-03 expenditure government General 46,4 Politics, (May 2007): 42. 30 CEU eTD Collection historical overview of exchange rates will be undertaken in the next section. next in the be undertaken will rates exchange of overview historical The case. the really not is this development, currency their concerning however, aspect; this in comparable are countries Visegrad the Overall, inthepast. indicators macroeconomic all almost in highest the score to used Czechoslovakia though even similar, rather was countries Visegrad illustrated thatThis throughout themodern history,section economic the of developmentthe order to become members, werewhich subjected to the EUall conditionality of andthem had to fulfill theaccomplished same requirements set by thetransition EU in at atthe the samesame time. time, They of process also painful rather sometimes undertake on had to them of all and regime appliedsame under the 1 May 2004.for the membership of the European Union (EU), Source: Original data taken from International Financial Statistics (IFS), author’s calculations. In millions of EUR from 1999 till 2006 Table 4: GDP per capita EUR of millions in per capita Year\GDP Average 2006 2005 2004 2003 2002 2001 2000 1999 To sum To sum Visegradup, the countriesnot only share asimilar be history, they also used to 6585,27 8978,72 8072,60 7435,99 6652,84 6097,30 5599,26 5165,99 4679,42 Slovakia 7 001 9 303 8 697 8 156 7 437 6 740 5 970 5 276 4 431 Hungary 8 919 11 075 10 307 9 641 8 927 8 529 8 133 7 561 7 177 Czech Republic Czech 5811,96 7201,99 6720,54 6322,29 5762,55 5524,53 5325,68 5087,21 4550,88 Poland 31 CEU eTD Collection Source: Kaser, Volume I, xii. US cents of contemporary gold content per unit of currency Table 5: Exchange rates, annual averages 1913-1950 present. weakening of Polishthe zloty andin theforintHungarian pastandnothe clear trend inthe long-term the and korunas, Slovak the and Czech the now before, koruna Czechoslovak long-term namely of in of Visegradcurrencies, the development the strengthening the the is todeterminein really there a willbe order whether countries.trend Several considered periods Visegrad the of of currencies the patterns long-term the examine I willnowalso considered. 2.2 Exchange Rate Development of the Visegrad Countries In the previous section, similar economic development of the Visegrad region has been has region Visegrad the of development economic similar section, previous the In 32 CEU eTD Collection effected as early Czechoslovak a basis for as early fair which the end the rate a of effected as provided 1922 at inflationwas in held budget was check,the that andcurrencystabilization was wasbalanced, “The result faster. process its reconstruction start could As Czechoslovakia such, administration.” fiscal financial and of in competence standards “thehigh aswell war than others, as by infasterassisted country less include Examples the recovery. industry, devastated undamaged WWIfavorablemore in were than of Combinations surroundingfactors the countries. several after in Czechoslovakia present conditions mentioned, itwas already as one, For reasons. these currenciesits neighborsof during the interwar period. Edward AlbertRadice discusses several of countries.” of remaining Visegrad the currencies than the more stable a largeextent to currency remained in Czechoslovak 1989-1992the also period the War,and World Second the tothe early “[s]imilarly 1920s, after that alsowrites Horváth Julius Countries,” at Universitythe of Duisburg, Germany,October 26-28,European 2001, 6. Eastern and ofCentral Currencies the on Euro of the Introduction ofthe Implications “The Conference 90 volatility which halfof experiencedamounta significant first the duringof 20 the currencies, Polish the or Hungarian the than stable more much was currency Czechoslovak the The abovereveals this also period. that table andthroughout mark Polishkorona depreciated the Hungarian for however the year 1920), wasappreciating (except Czechoslovak1925, the koruna listedthe currencies. Looking table,it atthe can be concluded thatduring the period of 1920 until appreciation of numbers indicate increasing currency,per unit of content of gold contemporary cents US represent rates exchange the Since Europe. Eastern and Central of currencies several of Julius Horváth, “On Currency Exchangeand Rate Regime: Example of Slovakia.” Paper prepared fora There are several reasons why the Czechoslovak currency was stronger than the than stronger was currency Czechoslovak the why reasons several are There Table 5 above provides a thorough Table foreignoverview5 aboveprovides a of thorough (annual exchangeaverages) rates 90 th century. 33 CEU eTD Collection September2004, (1 May 2007). Review brought about byabout brought financiers American whobegantotrustPolandafter the 93 92 91 Alois Rašín, is to assigned success the In Czechoslovakia, war. endthe the of periodpostwar by monetary different employedthe policies in countriesimmediately these after in the currencies Hungarian and Polish weak the and koruna Czechoslovak strong the namely League of Nations and a new unit of account, the pengo, had to be introduced. bestabilize had supervised currency, to Hungarian the by the to hyperinflation. In order Hungary Hungary inMay 1926.The by can be and postwar situation characterized chaos political stabilized The zloty inflation balances, currency the trade againbecameunstableandanotheradverse ensued.” once foreign investors were unwilling invest to capital their “From in Poland). sharply 1924, after therefore, Nations, of League the control itselfof fiscal the subject to to suggestion the rejected really Swissfranc.the set (Poland help Thisdid not thingsnot since other the country, were currency, depreciated mark,was replaced the by in zloty the which 1924, was fixedpar with at adequate landinflation inthat reform The was missing. Moreover, catastrophic. 1923 was inmirroredfact have government. Thiswas Secondly, astrong the not upuntil did 1926, Poland Czechoslovakia. Firstly, thepropitious situation, Czechoslovak the koruna was stable and strong. rather Polish territory foreign of capital substantial Thisamount attracted inturn trade.” export was more marked by the destruction of the war. Minister Finance of in Czechoslovakia in Kramá See for example: Malbone W. Graham, Jr., “Central and Eastern Europe in 1924,” in Europe Eastern and “Central Jr., Graham, W. Malbone example: Seefor Ibid, 42-44. Radice, 42. 19,no. 2(May, 1925):340 or Josef Zemánek, “Alois Rašín(1867-1923) – tv One could explain the difference between the currencies of the three Visegrad countries, of Visegrad three the currencies the between thedifference explain One could The story of Poland and Hungary was, according to Radice, rather different from that of de facto in officially1926, although inonly 1927.The stabilization was Ĝ ´s in 1918 government in and in1922 also Ĥ The American Political Science rce rce 91 þ and as a result of this eskoslovenské m coup 92 93 who was the first whowasthe by in Pilsudski Č ny,”10 34 CEU eTD Collection 97 96 (1 May 2007). 95 (1 May 2007). more stable. also but Austria and Hungary of that than stronger only not was koruna Czechoslovak the of rate exchange thatthe Figureappreciate. shows below 2 to currency this Czechoslovak enabledthe loan, bymeans of collected wealth tax and compulsory be to markedprevent were partially them from notes legal becoming to uncovered The tender. by the Austro-Hungarian Bank and later when the old notes were stamped, he did not allowkeep thenew and currencystrong low. Firstly,issued the inflation he refused uncoverednotes the them several measures to inmonarchy. up of had undertake As Rašínhimself order explains, he to the break the existeven after to continued however, Bank, issued. Austro-Hungarian were The notes were stamped in each country to make them legal tender on that particular territory until new 94 countries inflation these of all smallest hadthe As Czechoslovakia such, states. successor in other than number lower a significantly to in amounted Czechoslovakia percapita notes stamp. to wanted one Švehla’s government. Alois Rašín, 1-4. Jana Šet Alois Rašín, “AnInternational Remedy forDepreciated Currencies,” (1921): 1-4, Josef Zemánek, “Alois Rašín(1867-1923) – tv Ĝ ilová, Alois Rašín: Dramatický Život 96 94 Rašín claims that as a resultof these policies, the amount of the unbacked After the break up of the Austro-Hungarian monarchy, the old banknotes old the monarchy, Austro-Hungarian the of up break the After ý Ĥ rce rce eského Politika þ eskoslovenské m , (Praha: Argo, 1997), 80. 95 which amounted to 80% of the money Č ny,”10 September 2004, 97 and 35 CEU eTD Collection Czechoslovak currency. As opposed to the situation in Czechoslovakia, Hungary last was the Hungary in to thesituation AsCzechoslovakia, opposed currency. Czechoslovak new for these exchange to first the of one also and notes old the stamp to Empire Hungarian Austro- of states successor first of the wasone Czechoslovakia Europe. Eastern and Central in countries weakcurrencies of and other to the as Hungary Czechoslovakopposed koruna on London the andmaking Zurichexchanges, the currency “a remarkably stable currency.” within from the rangeof value ± 0.3% an 100 korunas Francs of average15.33 Swiss asto traded oscillated koruna’s exchange the rate period of the Even markets.” 1926-1930/1931, throughout the original Czechoslovakia, enjoying full confidence and a firm position on foreign exchange of Czechoslovak “was aleadingEuropean entire the period currency others, koruna during (1 May 2007). Anniversary of Central Banking in Czechthe Republic, Prague, (26 April 70 1996):of the 14, 5, Honour in Conference the From of Lecture A Collection in Practice” and Theory Monetary Contemporary 98 Reform,” Currency for Lessons Empire: Austro-Hungarian ofthe Dissoulution “The G.Spencer, Michael and Garber M. Peter Source: Monthly average of cents per crown Figure2: Dollar exchange rates for Austrian, Czech, and Hungarian Crowns, January 1914to June 1925 František Vencovský,“Czechoslovak National Bank Monetary Policy Debates of the 1920s and1930s in Light of Garber and Spencer furtherGarber tothehow Rašín´s strong explain contributed and Spencer policies As František Vencovský writes, as a result of monetary policies undertaken by Rašín and Essays Internationalin Finance , 191,no. (1994): 27. 98 36 th CEU eTD Collection 100 compulsory loan and pushing people towork more for less money hadwhich twofold impact. tax, wealth of means by people the from be collected to had money low, extremely inflation and ones difficult and the starting point for the Polish currency also disadvantageous. Currency Reform,” Currency 99 crowns circulated in Poland after the Austro-Hungarian marksand war, rubles,As such, German empires. different three of territories former of composed itswas territory fact that the to due waspeculiar inPoland situation The thereform.” after notes of thesupply over control of exercise effective “the currency, strong also this of aresult as and inflation lowhave to Czechoslovakia enabled that factor Financeallowed wasnot tolendmoney thegovernment. As call to such, the authors secondthis Bank. On the other hand, the Banking Office established in Czechoslovakia under the Ministry of Hungary was financed by borrowing from money Hungarianthe section of Austro-Hungarian the in largebudgetdeficitfactthat which the was currency leddepreciation, andassuch to Hungary why itflourished in Hungary. hand, other the on and Czechoslovakia in curbed was inflation how way one therefore, was, This to stamp old first notes, the of one was and exchange on tax theseintroduced Czechoslovakia As were value.” greatest had flowingthey away from Czechoslovakia where regions those into borders across moved notes “unstamped since states, successor other to countries like Hungary. state tostamp As theold notes. such, Hungary received manywere withheld notes that in the Peter M. Garber and Michael G. Spencer, “The Dissolution of the Austro-Hungarian Empire: Lessons for Ibid, 24, 12, 40, 44. Despite the fact that Rašín´s theory and his policies kept the Czechoslovak koruna strong koruna Czechoslovak keptthe Rašín´sand hispolicies fact theory that Despite the Garber and Spencer also elaborate on the second reason why inflation was high in was high secondinflation the why on elaborate reason Spenceralso Garber and Essays Internationalin Finance 100 , 191,no. (1994): 10-12, 16, 18, 40. making the exchange of the old notes for the new the for notes old the of exchange the making 37 99 CEU eTD Collection (1 May 2007) or Pavla Horáková, “Alois Rašín – First Rašín “Alois Horáková, Pavla Czechoslovak or Finance Minister,” 2007) 5 March May (1 2003, (1 May 2007). 101 rate of the Slovakdollarin to korunawas and29.71 init1995 2000 was The is 46.33. difference 2000. Theexchange from year 1995to represents45%depreciation whichin12.06, percentage dollar Czech tothe koruna was it26.54 andin was 38.60, 2000 differencethe amounting to the currencies of theita muchwas than lesser extent to weredepreciating, even here korunas iswhen that note also other Visegrad countries. andyears in inkoruna Slovak Important depreciated the to some and appreciated koruna others. For example, Czech the also later and koruna Czechoslovak the while in depreciating, wereonly currencies 1995, the exchange rate of the Countries,” at Universitythe of Duisburg, Germany,October 26-28,European 2001, 6. Eastern and ofCentral Currencies the on Euro of the Introduction ofthe Implications “The Conference Source: Julius Horváth,“On Currency Exchangeand Rate Regime: Example of Slovakia.” Paperprepared for a Annual averages, national currency units per dollar Table 6: Exchange rates of Visegrad countries, 1980, 1988-2000 rates of Visegradthe countries for year 1980and for theperiod then of 1988 until 2000. exchange the shows below 6 Table forint. Hungarian the and zloty Polish the of weakening term region, namely strengthening long-term the of Czechthe and the Slovak koruna and the long- in theVisegrad currencies the of in development patterns the two are there claims that also currency impacthad detrimental exports. on strong the secondly, and politicians other as well as masses among unpopular became he Firstly, Poland ...... Hungary ...... Slovakia ...... Republic Czech Czechoslovakia See forexample: Josef Zemánek, “Alois Rašín (1867-1923) – tv From the table itis clear that throughout these years, the Polish and the Hungarian Horváth Slovakia,” of Example Regime: Rate Exchange and Currency “On article his In ...... Zloty Forint Koruna Koruna Koruna Unit a c 32.64 1980 3.05 5.37 .. .. 430.64 50.41 14.37 1988 .. .. 59.07 15.06 1439 1989 .. .. 18.56 63.21 1990 9500 101 .. .. 10576 29.56 74.73 1991 .. .. 13627 28.30 78.98 1992 .. .. Ĥ rce rce 18136 91.91 30.80 29.15 1993 þ eskoslovenské m .. 105.11 1994 22723 28.79 31.93 .. 29.71 125.69 26.54 1995 2.42 .. 152.65 Č 30.68 27.14 ny,”10 September2004, 1996 2.70 .. 186.79 33.62 31.70 1997 3.28 .. 214.40 35.23 32.29 1998 3.49 .. 237.15 41.36 34.57 1999 3.96 38 .. 282.18 46.33 38.60 2000 4.35 .. CEU eTD Collection 102 Source: Kaser, Volume I, 393. Index numbers 1913=100 Table 7: Prices of imports andexports of some deflationist and inflationist countries in 1924 stronger andrespectively. theirHungary are and Poland weaker, therefore, and currencies that as it was in be case could the also It currency. Czechoslovak stronger the partially alsoexplain the might This past, today’s countries. inflationistHungary country, Poland asdeflationist both wereconsidered regarded and Slovakia and the Czech RepublicPolish currency someon occasions underwent periods of heavy depreciation.” are less inflationarykeep stable makersvalue able policy whileHungarian and typically of to were currency, their then Therefore, “when large makers from inherited an tostable former the Czechoslovakia attitude monetary policy.” exogenous shocksCzech] policy [and the Slovak “[t]he state,” theCzechoslovak of the existence affected of period the for the typical was currency “stable Visegrad since that suggests author The Horváth. by is offered countries region, the Czech and Slovak 2000. period Polishthe of currenciesbetween 1995 to two trends can be observed,namely stablekorunas,rather and ahighly volatile Hungarian and it differencewas 4.35.The is 1.93,which meansClearly, Polish the 80%. that zloty depreciated in of thein Polish1995 was2.42and 125% depreciation.2000 exchange rate to dollar zloty The inHungarian forint 1995 was in125.69 and 282.18 2000. This difference of 156.49 represents the of rate dollar to exchange The in56% depreciation. this isalmost 16.62, percentage Horváth, 5-6. The following shows that while table (Table 7) Czechoslovakiawasevenin the past One possible explanation for these different trends among otherwise similar Visegrad 102 39 CEU eTD Collection theoretical developedtheoretical in 1. framework chapter by patterns the applying stands behindthesetwo Iwill later, what countries and explain Visegrad of the developments rate exchange inthe patterns years two are eight there last within even that show first will I chapter, next the In currencies. Hungarian the and Polish the of and currenciesandweakening Slovak strengthening theCzech the of the long-term specifically, moreinis indeed, aretwotrends, longwas analyzed was wherethat, there the established term, countries Visegrad the in development currency Later WWI. after independence their since era) 1989 era, after communist period, stage(interwar inevery countries four) Visegrad (later three In this chapter, it has been shown that the economic development was very similar in all similar very was development economic the that shown been has it chapter, this In 40 CEU eTD Collection 103 zloty, the koruna, Czech forint, the the against of euro the rates exchange the namely currencies, be identified. clearcannot forintand zloty, in trend one the whereas the graphs as well below,itas calculations be will clear trend that in the iskorunas appreciation, instudied thisthesis, four all currencies aswellweakening,from were strengthening the years the throughout though even Therefore, observed. be still can trends some second, every examined. Although itis true, as Sloman writes, that exchange rates are very volatile be now will countries of Visegrad the four currencies vis-à-vis the of euro exchangethe rate The wasadopted. for theVisegrad currencies currency the reference euro, the year when is the istrend presentin not zloty the and theTheyear forint. 1999was chosen deliberately,since this this however, koruna, Czech and the of Slovak the of isappreciation acleartrend 2006,there till weakening of Polishthe and Hungarian the currencies. Iwillnow show that for theyears 1999 namely long-term strengtheningthe of Czechthe and the Slovak currencies and the long-term 3.1 Two Patterns in Currency Developments of the Visegrad Countries countries willbeby explained thetheoretical1. framework from applying chapter are presentfrom 2006. Afterwards, 1999 to trendthis and thecauses ofitin Visegrad the Czech and Slovak korunas and in alackof Polish pattern this the zloty and the Hungarianforint Analysis Countries- Visegrad the in Developments Currency The 3- Chapter Sloman, 722. Figure 3below showsanoverview of weekly the changespercentage of four the movements, currency in the trends two are there that claim I thesis, this Throughout of the of appreciation general the the pattern it beshownthat firstly will In thischapter, 103 and move and 41 CEU eTD Collection which means that these two currencies tend to depreciate. It will be shown that while Slovak will the that be shown It depreciate. to tend currencies two these that which means other hand, there is a rather increasing tendency of the exchange rate of forint andOn the pereuro. of korunas rates exchange zlotyof the tendencies from decreasing can beseen the per euro, namely appreciation. No such trend is present in the Hungarian forint and the Polish zloty. This Reuters. Source: Percentage changes of national currencies units per euro Figure 3: Weekly overview of the four Visegrad exchange rates vice versa. if depreciation. words, Inother linegoesupward thisthe indicates weakening currency the of and their means increase and currencies Visegrad means appreciation the of in rate the exchange decrease perEuro), units (national currency currencies Visegrad againstthe form the euro the of and theSlovak from koruna 10 January 22April1999 until 2007. Since theexchange are in rates From Figure 3, a similar trend for the Slovak and the Czech currencies can be identified, be can currencies Czech the and Slovak the for trend a similar 3, Figure From 42 CEU eTD Collection was evidently was evidently depreciating. astheforinttrend, fluctuated. theend Toward 2005until of last of quarter the 2006, forint noclear was of 2005, there momentuntil quarter third the From this appreciation. followed by endthe of year.In the firstthe quarter of forint2004, the experienced ups which and downs, was was mostly forintIn thethe again it to depreciate thirdappreciated, toward weakening. quarter, its firsthalf, changed throughout in2003and beginningnoclear trend. This was of 2003, there Slovak koruna wasmostly strengthening. the time, this From identified. be can appreciation of trend clear the however, present, until 2002 when korunathe experienced more significantdepreciation). From secondthe halfof 2002 middleboth had onlyexception beingthe aswell asdepreciationsslight appreciations (the of appreciation. changed in 2004 andsince thismomentup until now there is a clear trend of koruna’s appreciation. periodthis until From theCzech endof the koruna2003, depreciated slightly. This stronger and towards endthe of 2001 and thefirst throughout half itexperienced2002 of was Czechkoruna the however, fashion, movedin asimilar Czech koruna Slovak andthe The slightlyin appreciated. depreciate and quarter third to the only continued while forint the though Polishthe zloty can besaiddepreciate to until half firstthe of 2001. from 1999 until of beginning the four2001, all currencies moved similar inrather way, even is that above graph the from seen be can that thing interesting Another currencies. two other the in is of appreciation,experiencing areand absent rathercleartrend Czechkorunas the trend this On the other hand, the story of Hungarian forint is rather different. From 2001 until the until 2001 From different. is rather forint Hungarian of story the hand, other the On During 2001 and the first half of 2002, there was noclear trend in the Slovak koruna, as it canseehalf one In thesecond Polishappreciated, the significantly that zloty 2001, of 43 CEU eTD Collection all four currencies. Finally, overall changes for respective years were also calculated to see to calculated were also years for respective changes overall Finally, fourall currencies. minimum, Furthermore, in maximum,discussed have and meanvalues for turn. been calculated The overall weakening.added up.Thischange whether will indicate currencywas or the averageon strengthening of thenumbers were asnegative positiveAt aswell end, the vice versa. and other weektothe one currencies appreciation from thisof currency the zero, indicated Ifnumberwassmallercalculated. than the will been have be changes weekly studied, period even whole the For way. following in the analyzed been better indicatorinformation on fromexchange rates beginningof the 1999 until endof the 2006. The datahas of thisall and the will calculations also and Slovakia Banka,Bratislava, will from nowbeanalyzedwasobtained Poštová per eurothat be in this sectionconfirmed. be will claim this below, movements are rate basedexchange the of analysis the From forint. the and zloty in the absent is trend onthis countries, this data. Visegrad all of development economic similar the despite while korunas, theCzech Slovak and The data is weekly and contains in cleartrend zloty. isnoone the there Therefore, half of 2004). until half second of the 2001 second the of period (from depreciation half of 2001 andfrom half secondthe which2004 until of present), the was outweighed by one periods2006, therewere of first during two period the of the appreciation (1999 until 1999 to saythat can by One theyearclose appreciation. to then depreciated of The zloty 2006. quarter until second the continued of halftrend 2005. This inthesecond appreciation changed backto which followed bydepreciation, appreciating, year rather zloty the For awas then, depreciation. the second half of 2001 until the second quarter of 2004, the trend in the zloty was clearly The data on the exchange rates of the four currencies in the form of national currency unit From the analysis of the graph above, it is clear there is a trend of appreciation of the Even though Polishthe zloty significantexperienced appreciations and depreciations from 44 CEU eTD Collection Slovak koruna, the Czech koruna also strengthened, as the overall change of indicates. Slovak the change strengthened, of koruna, Czechkorunaalso as the overall -7.19 appreciation and2006. Similarly the koruna hasstrengthened from1999 considerably the to to isclear theSlovak trendfor the it koruna can that be concluded appreciation, therefore indicates change overall negative The 8points. by strengthened therefore, koruna, Slovak whilewas 42.50, the endvalueAs was34.42. such, overall the change-8.08. The amounts to currencies Slovakbe shouldForthe initial the clear. of value in koruna, exchangerate the 1999 in 2006, whichlastweek for the rate in 1999from exchange the week first for the rate exchange the subtracting leads the same overall by change adding respective for changes upall by alternatively,results. all weeks or the By analyzing these fluctuations.experiences numbers, the zloty andthe trend clear really aone is not general there that be concluded itcan depreciation, trend of trend of depreciation. Whilethezloty experienced 223timesappreciation and 220times the Hungarian forintappreciated only 208 times, while 235 itdepreciated times, showing ageneral appreciated appreciating1999 until 210times from Czechkorunadepreciated 2006. Similarly,the and 233 rather was currency Slovak times,the that concluded be can it Therefore, appreciation. times 237 and indicating depreciation 206times experienced Slovak the that koruna indicate results forcurrency. each The the trend addedup were as depreciations aswell appreciations numbersof the Afterwards, appreciation. of appreciationcurrency, andnegative for change depreciation where positive changestands represents as well. On the of currencies. the developments the between differences other hand, macroeconomicthe variablessection, annual nextthe In depreciation. or appreciation wereexperiencing currencies whether the and other determinants of exchange rates will be used to explain the In order to confirm the results above, another variable has been calculated, namely the namely calculated, been has variable another above, results the confirm to order In As was already explained, changes from one week to another were calculated for each 45 CEU eTD Collection situation changed alittle, astheSlovakand (1.50) koruna forintthe depreciated (9.98) and the while0.10, for forintit the was 5.22,for theCzechand koruna 1.48, zloty the In 2000, 0.16. the appreciation, while all the other three depreciated. The yearly change for the Slovak koruna was - year.in particular appreciated that or currency whether the depreciated indicate then The yearly will change year. summed bythe this However, timewere they rates. exchange four of the differences weekly therespective namely asabove, I calculated same technique the applied have I basis. yearly the on also be analyzed to have depreciation) and (appreciation section, changes the inthe next bedone which data, will macroeconomic annual countries using Table 8: Min, max and mean values for the Visegrad countries minimum, maximum and mean values of the Visegrad currencies. in trend fluctuationsthe has of zloty.the its It both ups and Table downs. 8below shows the clear no is there rather appreciation, of a trend has zloty the that conclude cannot one is, change smallhow account into howevertaking appreciation, this The negative suggest number would for thiscurrencyis isThe overall -0.18. againpeculiar. change zloty The situation of Polish the currency by As whichis1.80 points, isnoclear negligible. there rather such, trend forint. in the change for Hungarianthe forintis 1.80.Positive overall change suggests depreciation of the overall the hand, other the On appreciation. of a trend show currencies these both Therefore, Values\Currency Slovak Slovak koruna Values\Currency Mean Max Min In 1991, the Slovak koruna was the only currency from was In 1991,the Slovakfrom the experienced studied koruna the only that ones currency of Visegrad the rates of exchange the trends inthe differences the toexplain In order 41.21 46.82 34.40 253.52 282.75 234.55 Hungarian forint Hungarian 32.36 38.53 27.46 Czech koruna Czech 4.07 4.90 3.37 Polish zloty Polish 46 CEU eTD Collection developments in developments four. Visegradthe determinants willexplainstands behindexchange be rate currency thedifferent to compared what dataandsection macroeconomic in other the next annual yearstudied, depreciatingthe ineach of or wasappreciating currency the whether shown already itwas Since be identified. cannot zloty and forint the in trend the whereas koruna, Czech the and Slovak the both in identified been has strengthening of trend A clear development. economic similar their despite different rather zloty. the and forint in the identified be can trend no whereas long-run, years.four These suggest thattheSlovak results andtheCzechkorunaarein strengthening the in years.depreciated two Finally, in Polishappreciated years the zloty 4 in andalsodepreciated fourappreciation and depreciation times. The in appreciated Czech koruna six years and times appreciation and only one time depreciation. The Hungarian forintexperienced both (-3.22),Slovak koruna forintthe (-0.28), and (-1.53) Czech the koruna appreciated. and1.48) zloty the appreciated. In2006,only(-0.25) depreciated, zloty the (0.02) while the depreciatedcurrency inwhile that 2005 (5.73), Czech the koruna (-1.18), Slovak (- koruna The forint was theonly the Czechforint -2.32, zloty the -2.11, -13.80, the -0.58). koruna koruna was 0.62) onlythe appreciated. that In2004,againone all four (the appreciated currencies Slovak (- koruna in theSlovak whereas 2003, all and zloty (0.64) the depreciated (1.20), Czech koruna Slovakthe for -8.84 koruna, theforint, and-0.37 for Czech the The forint(23.95), koruna). the for while zloty the (-1.00 threecurrenciesexperienced (0.49), other depreciated the appreciation -20.16koruna, for theforint, -3.06 for the Czech and-0.35for thezloty. koruna, In 2002, only for Slovak the were-1.15 changes The annual appreciated. all them of since countries, Visegrad andCzech thezloty (-1.35) appreciated.koruna The2001was(-0.30) a yearforgood all The section has shown that the currency developments of the four Visegrad countries are countries four Visegrad of the developments currency the shown that has The section To sum eightyearsup, throughout the has Slovak studied, the koruna experienced seven 47 CEU eTD Collection currencies and in which direction. in which and currencies influences theVisegrad show what to analysis a comparative and perform exchange rate) year as it was determined. I will now define the aforementioned variables (the determinants of the Table 9: Appreciation or depreciation of the Visegrad currencies debt. balance, account, trade public government and on current the studied in this section are the following: inflation, interest rates, balance of payments, net balance determinants rate exchange The forint. Hungarian the and zloty Polish the in trend clear no and koruna Czech the and Slovak the of appreciation clear namely currencies, their of development in the trends standbehindthedifferent factors particular which clear become itwill countries, across four the determinants rate here. several exchange comparing By be 1will chapter applied in developed 2006.Theframework theoretical from1999 until exchangeratedeterminants other 3.2 The Explanation of the Different Trends in the Visegrad Countries year\currency 2006 2005 2004 2003 2002 2001 2000 1999 Table 9 above captures whether the currency appreciated or depreciated in aparticular depreciated or appreciated currency the whether captures Table 9above In sectionthis I will analyze compare and several macroeconomicannual and variables Slovak koruna Slovak appreciation appreciation appreciation appreciation appreciation appreciation depreciation appreciation Hungarian forint Hungarian appreciation depreciation appreciation depreciation appreciation appreciation depreciation depreciation Czech koruna Czech appreciation appreciation appreciation depreciation appreciation appreciation appreciation depreciation Polish zloty Polish depreciation appreciation appreciation depreciation depreciation appreciation appreciation depreciation 48 CEU eTD Collection Averages for individual for Averages are recordedtoo. countries shows what below 10 Table region. in Visegrad the developments theinfluences currency seewhat performed to CPI and interest rates were 3.2.2 Comparative Analysis from 1999 to 2006 in countries. Visegrad the across variables all budget.Iwillnowcompare these state the the Visegrad thedeficitrepresents budgetof Finally,is balance. state used aproxy for foreign trade as trade countries. which forms partof publicthe debttogether with theis domestic used one, asaproxy. Similarly, debt, (external) foreign available, not was debt public the on information As the assets. foreign of ownership and domestic the assets of domestic foreign ownership the between difference Capital Account,exports, movements covering investment and FinancialAccount,covering the money. Balance of Payments of using asthe cost by Bloomberg aredefined ingiven rates, also percentage, inflation. Interest is calculatedin a rise of indication an is items as these of costs in the a Rise sum care. medical gasoline, ofhousing, Current Account, covering food, andas such services, goods several basic of basket a fixed of price by establishingthe imports and bytheauthor. weredone calculations the however, from Bloomberg, weretaken all variables the Moreover, thedefinition of variablesthe is as given well. original and The data theof definitions 3.2.1 The Description oftheVariables Inflation, in this case Consumer Price Index (CPI) is given in percentage andwas obtained in is PriceIndex (CPI) percentage given in case Consumer this Inflation, beIn introduced. which subsequently variables, will this compared,section, the are In this section, comparative analysis of all the variables mentioned above will be will above mentioned variables the of all analysis comparative In this section, 49 CEU eTD Collection which is lower than inflation in Slovakia or in Hungary. Despite this, Poland’s currency does not 1999 andlow 2000,Poland had inflation rather as well rates. Averageas interest is CPI 3.86%, for year.Except evenin this appreciated inflation,of koruna effect negative which offset the developments, suchhowever, positive toother due high(9.3%), duringyears.again rates In2003,CPIwas these as positive economicnumbers, which mirroredwas also in depreciation of Slovakthe koruna in 2000 andhigh interest performance thatof very Mainly inandinflationHungary,similar to reachedhigh 1999and2000, 6.94%. growth (see for in on in theCzech impacted forintRepublic. This the anegativeAveragein Slovakia way. CPI is example Table 4), inreached for 6.74% Hungary theyearsstudied, is which times three almost higher inflation than that of than higher themuch was Hungary in CPI years. the Czech throughout koruna Czech the on impact positive Republic, whicha has was This years to2006 clearly for2.36%. 1999 inflation average Czech The Republic. was also reflectedlow in were rather the rates interest CPI and both see that however, can From one savings. 2002, in high interestlose ontheir rates sothatpeople not didbe interest by high had compensated to countries. This rates. The average CPI In percentage Table 10: CPI and inflation rate average 2006 2005 2004 2003 2002 2001 2000 1999 year The inflationin table abovereveals 1999and inhigh 2000, was that Visegrad all 4,2 3,7 5,9 9,3 3,4 6,4 8,4 14,2 CPI 6,94 Slovakia 4,75 3 4 6 6,5 8,8 8,8 8,8 rates interest 6,33 6,5 3,3 5,5 5,7 4,8 6,8 10,1 11,2 CPI 6,74 Hungary 8 6 9,5 12,5 8,5 9,75 11 14,5 rates interest 9,99 1,7 2,2 2,8 1 0,6 4,1 4 2,5 CPI 2,36 Czech Republic Czech 2,5 2 2,5 2 2,75 4,75 5,25 5,25 rates interest 3,38 1,4 0,7 4,4 1,7 0,8 3,6 8,5 9,8 CPI 3,86 Poland 4 4,5 6,5 5,25 6,75 11,5 19 16,5 rates interest 9,25 50 CEU eTD Collection account deficit is rather high, it is offset by the financial and capital account. Therefore, interms Therefore, account. financial andcapital by is the high, it offset is deficit rather account beingCzech Hungary. currency or than stronger of Poland though Slovakia’s that Even current the on impact an have might which Poland, than better little a be doing to seems Republic Czech negative, the deficitismuch lower than that of Poland. Similarly, in terms of current account, the is it when even However, others. for negative and years some for is positive payments of studiedperiod anditis ratherlarge having anegative influence onthe forint. The Czech balance negatively,depreciate.it causing to Hungary’saccount shows only current throughoutdeficits the currency influencing the studied, period the was negative throughout account Similarly, current appreciation. in zloty’s mirrored also was which surplus, showed payments of balance Polish inindicatingin negative the was each yearstudied,2005,when the of deficit.exception Theonly was payments of balance inflation, of level favorable rather had Poland though, Even countries. of EUR In millions Table 11: Balanceof payments and current account influence these Visegradcurrencies. the show a trend of appreciation. I will compare the other exchange rate determinants to see how (2003-6) average (2003-6) sum 960,97 average sum 2006 2005 2004 2003 2002 2001 2000 1999 year Table 11 records values of balance of payments and current account in values account and Visegrad Table 11records ofbalance the payments current 7687,75 -20330,75 N/A -11390,2 -11390,2 414,54 N/A -2595,39 -20330,75 -2213 7687,75 -4018,73 -3058,50 -3760,89 1475,91 -3153,34 1567,78 -2148,66 1173,61 -2584,32 4525,52 5,93 776,48 -1203,25 1221,03 BOP 289,70 -5910,11 N/A N/A -13081,62 1158,79 Slovakia -2501,33 -960,23 CA -3270,40 -2541,34 N/A -1079,36 -1079,36 N/A N/A -1506,92 N/A N/A BOP CA N/A -1117 N/A -1397 N/A -1690 N/A -1706,11 -153 298,94 N/A -939,01 -1984,34 N/A N/A N/A N/A -909,47 N/A -1477,53 -1477,53 N/A N/A -1423,78 -793,43 N/A 103,63 -316,14 -648,85 Hungary BOP Czech Republic Czech 185 587 -437 -198,58 -528,72 1084 -211,70 -445,74 -697 525,88 -681,91 N/A N/A CA N/A N/A N/A N/A -918 -436 BOP -656 N/A -50,75 -203 Poland -737 -1167 CA -5554 -521 N/A -782,25 -1201 -530 -660 -738 -3129 51 CEU eTD Collection trade, it istrade, it obvious Czech thatthe deficit(-499.25) ishigher than of that Slovakia (-374.52), of EUR In millions Table 12: Foreign trade high as Hungary. In terms of current account, all four countries show a deficit. followed by the Czech Republic. Poland’s balance of payments shows a deficit, however, not as sum average), (both balance of and surplus Slovakiapayments thehighest stated, has previously countries in termscompareleast threein the to years at fororder 2003to2006, account andcurrentpayments of their balance todeal of balance have for year.Polandand averaged one In order summed this with problem, I of paymentsfor 4years, account andfor isbalance and of current Republicon both nodata therepayments and all four in terms forint. the and zloty the of influencing negatively account, current current of in terms account.in Hungary and in Poland deficit and currencies their influencing positively side Czech As cantrends be observed concerning balance of namely,payments, onthe surplus Slovak andthe of positivelypayments influences Slovak koruna the theCzech koruna. similarly Assuch,to two of balance Slovakiaof payments, isshowing surpluses inallyearsfor 2006.The except balance year average -374,52 average sum 2006 2005 2004 2003 2002 2001 2000 1999 Foreign trade in millions of EUR is shown in Table 12. Looking at the average foreign The data on the balance of payments is unavailable for Hungary. Similarly, for the Czech Slovakia -2996,15 -374,34 -771,95 -333,95 -137,93 -378,31 -471,76 -316,43 -211,49 Hungary -302,74 -1816,46 -82,1 -142,66 -188,95 -376,57 -615,98 -410,2 N/A N/A zc eulc Poland Czech Republic -499,25 -3993,97 -100,99 -143,05 -340,85 -705,32 -603,12 -752,38 -743,51 -604,75 -808,86 -5662 -1119 -425 -538 -623 -792 -923 -1242 N/A 52 CEU eTD Collection again,having average foreignequal 13456.26 debt to million followedEUR, by Czech the Czech Republic have lower foreign debt than Poland and Hungary. Slovakia scores the best are the twotrends and observable again. values, both Slovakia sum valuesaswellaverage form publicInthisthe debt. analysis,isforeign debt used asa forproxy publicComparing debt. of EUR In millions Table 13: State budget the zloty. is, forPoland. explanation This another therefore, lacking in trend of forintappreciation and the Hungary scoredwell to both and as opposed whereSlovakiapayments, CzechRepublic and the Hungary’s budgetHungary as well Slovakia and to (-4149,42). Czech the as (-1421,38) Republic (-2365,16) deficittheir however Poland’s currencies positively, is highboth very deficit(-7661,46) compared to is also rather can one lowdeficit, aswell influencing that Slovakiaconclude hasbudget Czech the Republic, high. This trend is higher808.86) shows deficitinfluencing similar zloty negatively. to that Only which is in thatof comparable to turn Hungary rather (-302.74). foreign (- Polish the trade of the balance of Year 2002 2001 2000 1999 average -1421,38 average Sum 2006 2005 2004 2003 one with the domestic together which debt, (external)foreign the below shows Table 14 budgetIn Table 13,state deficitfor theVisegrad is countries shown.values, From average Slovakia N/A N/A N/A N/A -5685,52 -938,83 -1004,28 -2082,86 -1659,55 Hungary -6443,41 -1928,80 -1791,25 -1676,43 -4149,42 -33195,39 -8108,28 -3924,57 -5119,40 -4203,25 zc eulc Poland Czech Republic -1621,28 -2400,71 -1354,61 -900,71 -2365,16 -18921,28 -3460,28 -2000 -3316,67 -3867,02 -10406,63 -8602,66 -4064,88 -3327,18 -7661,46 -61291,72 -6623,39 -7540,93 -10959,15 -9766,90 53 CEU eTD Collection appreciation, while others influence the zloty in the negative direction. This is also reflected in is alsoreflected This direction. negative in the zloty the influence others while appreciation, Poland Hungary + Czech Rep. Slovakia Table 15: Exchange rate determinants is case. Slovak the indeedthe of koruna appreciation The negativedirection. the four of influence sixinthe it influence positivedeterminants the whileonly in direction, ittwo as should Slovakthe also determinants, koruna appreciate, exchange rate tothe this, according Czechthe is positively, which apartial koruna explanation koruna’s of appreciation. Similarly to studiedinfluence of exchange rate is the from determinants the that table clear the depreciation. It of direction in the influence indicates minus a while positively, currency the impacts determinant below. is exchange the Table Aplussection rate summarized inthe indicates 15 of EUR In millions Table 14: Foreign (external) debt Poland having the second highest(31285.07). Republic with 25196.35 million EUR. Hungary has thehighest foreign (48404.54) withdebt year average sum 2006 2005 2004 2003 2002 2001 2000 1999 On the other hand, in the case of Poland, only two determinants point to the direction of in studied this of rates exchange the determinants the concerning The overall performance Slovakia 107650,07 22096,91 19959,93 18253,32 13578,69 9794,46 8384,66 7791,05 7791,05 13456,26 + - - CPI - 0 + BOP + Hungary 387236,31 82056,8 66239,56 55150,11 46041,12 38559,25 37386,99 32571,54 29230,94 48404,54 + - - account Current + zc eulc Poland Czech Republic 201570,82 38514,51 33977,15 33569,04 25890,78 20021,52 16601,62 16033,24 16962,97 25196,35 - + + trade Foreign + 250280,52 33322,35 32923,74 29362,51 33739,41 28664,24 26116,68 31906,21 34245,38 31285,07 - - + Foreign debt State budget + - - + + 54 CEU eTD Collection (12 December2006). 104 incrediblykoruna in thesecondhalf 2006 of Slovak the haspulled capital of speculative amount large Certainly, the forint. Hungarian the explain the strength of the Slovak and the Czech koruna and no clear trend in the Polish zloty and might which speculative capital, or situation analyze, political such as whichhard areto factors rates. As such, there might be other factors which have notbeen analyzed in this thesis, as well as in movement exchange the can determine that factors numerous are there framework, theoretical inthe shown aswas However, the spectrum. of side opposite the at only samedevelopment the studied. countries, duetolimitedVisegrad determinants because the present analysis shown, depreciated aswell theforintyearsboth be during appreciated might the as studied.This offers only partialAs direction. was inthe andonly positive one in negative direction Hungarian the currency explanation of the currency the influence determinants exchange Four rate is development. inits cleartrend noone there development of the the development of the zloty, as it sometimes appreciates, while other times it depreciates and the Polish Sejm, the only exceptions being SLD and PSL, who had seats in the lower house of house being inthelower SLDand Polishthe only hadseats exceptions Sejm, the PSL,who in new parties new and constantly are there such, As parliament. inthe seats even get to elections inhadfor in one term,parties, receive seats who not support enough next parliamentthe did inSejm years 1993,1997,andis 2001.What these remarkable about results is factthatthe the to elections parliamentary the of results the listing by Poland in instability political the shows instability is dramatic the taking events in place September 2006in Hungary. 16below Table forillustration this perfect The situation. positive negatively economic rather despite currency their influences which stable, very not is Poland and Hungary both in situation political the TV TA3, “Pre Similarly, atfirst glance, one might say that the Polish and the Slovak currency are having þ o sa koruna posil Ė uje a dokedy ešte bude,” Analýzy a trendy, 24 October 2006, 104 and the appreciation continues. On the other hand, 55 CEU eTD Collection Table 16: Results for parliamentary elections to Sejm- Poland 1993, 1997, 2001 further research. be topic for would aninteresting also This lesser. have might others while currency, the on influence bigger have might determinants some such As studied. determinants the of impacts individual the evaluate to possible not was it that fact the is analysis present the of shortcoming Further research. further for factors leavesuch, instability in of As illustrations these Poland. I of theother examination political dissatisfaction with the political parties mirrored in their constant alternation in Sejm is one of the less in The ortheir of votes change in taste it thanhalf (7.31%). people’s 1993 to of parliamentin all three terms. However, even here we see that, for example PSL wentfrom 15.4% 1993 Niepodleglej) Polski (Konfederacja Poland Independent for Confederation - KPN Pracy) (Unia Labour Union UP - Demokratyczna) (Unia Union UD -Democratic Ludowe) Stronnictwo PSL -Polish Peasant Party (Polskie (Sojusz Lewicy Demokratycznej) Left of Democratic the Alliance SLD - Rzeczypospolitej Polskiej) Rzeczypospolitej (Samoobrona Republic SO - Self-Defence of the Polish Obywatelska) PO - Civic Platform(Platforma Demokratycznej -Unia Pracy) (Sojusz Lewicy Union Left-Labour Democratic ofthe Alliance - SLD-UP 2001 OdbudowyPolski) (Ruch Poland Rebuilding for -Movement ROP Ludowe) Stronnictwo PSL -Polish Peasant Party(Polskie Wolnosci) Union (Unia - Freedom UW (Sojusz Lewicy Demokratycznej) Left of Democratic the Alliance SLD - (Akcja Wyborcza Solidarnosc) Action Election -Solidarity AWS 1997 Reform) Wspierania (Bezpartyjny Blok Wspolpracy Bloc Reform Party - Non BBWR 1 1005004 1460957 2124367 2815169 1327624 1651099 5342519 1749518 3551224 4427373 795487 727072 956184 746653 votes % votes 10.59 20.41 12.68 41.04 13.37 27.13 33.83 7.28 15.4 10.2 5.77 5.56 7.31 5.41 seats 132 171 216 164 201 41 53 22 27 16 74 65 60 6 % seats 28.69 11.52 37.17 16.08 46.96 35.65 43.69 14.13 13.04 8.91 4.78 5.86 3.47 1.3 56 CEU eTD Collection development. is reveal intheircurrency noclear there that trend indicators in of Hungary these terms mixed and of Poland results hand,rather other On the currencies. of theirof trend appreciation is studied; there a factors bythe therefore, clear Slovak areinfluencedpositively the korunas across countries influencewas found and howthey currencies. individual It Czech thatthe and several determinants of the exchange rate have been analyzed in order to see whether they differ strengtheninginno of such forint. ispresent korunas Secondly,the trend and and zloty the the (25May 2007) Source: University of Essex, “Poland- ElectionResults,” Polskich Rodzin) Polskich (Liga Polish Families League ofLPR - Ludowe) Stronnictwo PSL -Polish Peasant Party(Polskie Sprawiedliwosc) i (Prawo - Law andJustice PiS To sum hasTo firstly chapter shownup, this thatthereisindeeda long-term of trend 1025148 1168659 1236787 7.87 8.98 9.5 38 42 44 8.26 9.13 9.57 57 CEU eTD Collection development has several implications. For one, the appreciation like the one happening in likehappening one the appreciation the For one, implications. has several development in developments such asThis four. countries, the Visegrad the isbecause the currency lackingforint. Toconclude,itis inthezloty and the tostudy important currency the partially, why the Slovak and the Czech koruna show a trendforint and the ofzloty are mostlyappreciation, influenced negatively by these determinants. This explains, while at least this trend in the Slovak koruna is alsoinfluenced positively, except for CPI and current account. However, the findings of suggest thesis theCzechthis that is koruna influenced by positively factors; all these foreign (external)have debt been examined for all Visegrad year forcountries 1999to2006.The and state budget, rates, balanceaccount, foreign interest current of payments, trade, price index, Consumer currencies. of interms their countries Visegrad between the thedifference can explain infourappreciated years inandyears. depreciated four and forintthe both thezloty hand, other the studied. On years the insix appreciated of koruna followedwhich Czech by appreciated, the koruna Slovak yearsthe inthis time, seven 2006.for theperiodThroughout of 1999 to currencieswerestudied strengthening. Visegrad The times other and weakening of pattern sometimes show currencies these as forint Hungarian Slovak islackinginthe long-term of andtheCzech Polish the appreciation koruna zloty and the of trend the analysis, present the by confirmed as However, development. currency different the namely difference, significant is one there similarities, these despite that show to was thesis this literature treats these countries usually as one group precisely due totheir similarities. The aim of the that shown was also It similar. rather are countries Visegrad the variables, macroeconomic Conclusion I have performed a comparative analysis to see which determinants of the exchange rates The Visegrad countries do share several features. It was illustrated that in terms of general 58 CEU eTD Collection Eurozone. 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