Real Exchange Rate Channel of QE Monetary Transmission Mechanism in Selected EU Members: The Pooled Mean Group Panel Approach

Since the Great 2008 Recession, central banks around the world have been coping with monetary consequences that highlight structural costs of the economic system and the rise of unconventional monetary measures. This research aims to capture the heterogeneous effects of expansionary balance sheet (Quantitative easing) policy on the real effective exchange rate and current account balance under the different exchange rate regimes in crisis circumstances. The sample is structured of two groups of EU countries differentiated by level of monetary autonomy: EZ members (Austria, Belgium, France, Germany, Netherlands, Italy, and Spain) are represented by countries with the highest level of asset purchases by ECB and emerging monetary autonomous EU economies (Czech, Hungary, Poland, and Romania). Empirical findings are based on the framework of cross-sectional dependent, non-stationary, heterogeneous, dynamic panels using the (Pooled) Mean Group estimator during the 2014Q1–2023Q1 time horizon. Results indicate a positive long-run relationship between the central bank balance sheet assets, the real interest rate, and the real effective exchange rate. A negative long-term relationship with the current account balance is confirmed, suggesting a diminishing external position. While error-correction parameters are significant and heterogeneous, research confirms higher real effective exchange rate reaction for the EZ members with higher adjustment toward worsening competitiveness along with external balance.