Post-crisis patterns of external adjustment in some small open economies

Financial Adjustments to External Shocks: Empirical evidence from some EU-members and transition countries (1993-2014)

Abstract

In this paper there were two types of international financial adjustment patterns identified: type-A, where highly independent monetary policy and low domestic currency stability
was the preferred path; and type-B, where monetary policy independence was given up
and currency stability was acquired. We argue that whichever type of external financial
adjustment the preferred path may be, the ability to resist major external shocks simultaneously depend on a handful of other macro prudential factors (e.g. fiscal and debt service performance), too. A country may not be euro-zone member and still do well in the
shock resistance department, like the Czech Republic. For Hungary, euro-zone membership
would sure bring better shock resistance capabilities, yet, it would in no way offer solution
to the existing deficits in its levels of international competitiveness and productivity.