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How Credible Are the Exchange Rate Regimes of the New EU Countries? : Empirical Evidence from Market Sentiment

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  • CHRISTIAN BAUER
  • BERNHARD HERZ

Abstract

European Union (EU) accession countries have strong incentives to stabilize their exchange rates with respect to the euro as the nominal anchor. We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize the de facto exchange rate regimes and derive a market-based measure of the credibility of these exchange rate regimes. Our empirical results indicate that in the run-up to EU accession, most Central and Eastern European countries enjoyed high credibility in their exchange rate management. However, some of these future Economic and Monetary Union participants will have to strengthen their efforts and further focus their exchange rate policy on stabilizing the euro exchange rate.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Eastern European Economics.

Volume (Year): 43 (2005)
Issue (Month): 3 (May)
Pages: 55-77

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Handle: RePEc:mes:eaeuec:v:43:y:2005:i:3:p:55-77

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=106044

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Cited by:
  1. Christian Josef Bauer & Paul De Grauwe & Stefan Reitz, 2007. "Exchange Rates Dynamics in a Target Zone – A Heterogeneous Expectations Approach," CESifo Working Paper Series 2080, CESifo Group Munich.
  2. Beirne, John & Bijsterbosch, Martin, 2009. "Exchange Rate Pass-through in Central and Eastern European Member States," Working Paper Series 1120, European Central Bank.
  3. Daniel Stavárek, 2006. "Assessment Of The Exchange Rate Volatility In New Eu Member States And Romania1," Revista Tinerilor Economisti (The Young Economists Journal), University of Craiova, Faculty of Economics and Business Administration, vol. 1(6), pages 20-29, April.
  4. Stavarek, Daniel, 2006. "Ability of the New EU Member States to Fulfill the Exchange Rate Stability Convergence Criterion," MPRA Paper 1202, University Library of Munich, Germany.

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