EXCHANGE RATES CONNECTIONS TO BUSINESS CYCLES IN CENTRAL AND EASTERN EUROPEAN COUNTRIES.

This paper aims to fill the gap in existing literature and provide direct empirical evidence on how exchange rates are connected to macroeconomic fundamental variables in ten EU new member states from Central and Eastern Europe. We use cross-correlation on cyclically filtered and seasonally adjusted time series over the period 1998-2010. In average, we found the cyclical properties of exchange rates and other variables as weakly correlated. However, substantial differences among countries and variables were revealed. The only common feature is a generally higher correlation of macroeconomic aggregates with nominal than real effective exchange rate. The results also suggest that the correlation between exchange rate and net export is more pronounced in less open and relatively poorer countries. [ABSTRACT FROM AUTHOR]