As trend of globalization progresses, the importance of foreign exchange rates is becoming ever greater.9 Judging from our experience, foreign exchange rates have been proven to over-shoot, markets to overrespond and therefore policy authorities are often observed to have the tendency to overreact. This means that there is an immanent risk of maximization of type II errors.
Lower risk tolerance means, that economic sustainability had become a key issue, and there are very few if any countries among CESEE who are surely on a sustainable path. The closer is a country to a point where the sustainability of a country’s economic policy is questioned, the more sensitive it becomes to both global and country specific economic news.