Abstract
We identify economies with a significant long-run relative contribution of asymmetric shocks to exchange rate volatility: in Romania, Lithuania, Bulgaria, Slovakia and the Czech Republic this contribution is over 40%, and for the rest of the group it is around 30%. Our findings also show that economies in the region exhibit heterogeneous monetary policy responses due to asymmetries present both within the region and vis-a-vis the rest of the economies considered.
These asymmetries are partially due to different monetary policy and exchange rate regimes (for non-member countries) and to structural differences (for example, TFP levels and levels of nominal prices). At the same time, our results are consistent with the real exchange rate having a shock absorption role in CEE countries.