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Abstract

This study examines the causal links between improvements in economic freedom and changes in GDP per capita of new EU members in transition in the period 2000‒2009. The empirical results suggest significant causality running from changes in monetary and fiscal freedom, trade openness, regulation of credit, labour, and business, legal structure and security of property rights, and access to sound money to movements in GDP per capita, especially in less and moderately developed CEE transition countries. Moreover, we find evidence that improvements in economic freedom are one of the main factors stimulating the convergence of these economies towards rich EU members. The evidence of causality in the opposite direction is much weaker.
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Abstract

A review of the contemporary mainstream literature on exchange rate modelling clearly indicates that the rational expectations hypothesis (RE) is almost invariably taken as a point of reference in empirical investigations. This paper tests the RE hypothesis for the Polish foreign exchange market within the Roman Frydman and Michael Goldberg model that builds on the hypothesis of imperfect knowledge economics (IKE). The employed modelling strategy consists in the formulation of assumptions about the persistence of nominal rate, prices and interest rates and of the verification of competing scenarios congruent with RE and IKE. As a result of the analysis, the RE hypothesis is rejected in favour of the IKE alternative.
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