Exchange rates in Poland and Slovakia absorb shocks, impacting financial stability.
The article looks at how exchange rates in Poland and Slovakia either absorb or spread economic shocks. By using Bayesian models, the researchers found that Poland's more flexible exchange rate helped absorb shocks better than Slovakia's. Financial shocks had a bigger impact on Poland's exchange rate, especially before the crisis. Interestingly, being in the ERM II did not protect Slovakia's currency from becoming too strong.