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)

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.