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Are the Exchange Rates of EMU Candidate Countries Anchored by their Expected Euro Locking Rates?

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  • Anna Naszódi

    ()
    (Magyar Nemzeti Bank and Central European University)

Abstract

This paper examines whether the exchange rates of the Czech koruna, the Hungarian forint and the Polish z?oty were anchored by the market expectations for their euro locking rates in the period from December 15, 2004, to August 3, 2006. First, I derive the process of the exchange rate as a function of the processes of the following three factors: latent exchange rate, market expectations for the euro locking rate and locking date. Then the expected fi nal conversion rates are fi ltered. The time-varying volatilities of the state variables are estimated from cross-sectional data on option prices.

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Focus-on-European-Economic-Integration/2007/Focus-on-European-Economic-Integration-Q1-07/chapters/feei_2007_1_naszodi_tcm16-58440.pdf
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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2007)
Issue (Month): 1 ()
Pages: 115-134

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Handle: RePEc:onb:oenbfi:y:2007:i:1:b:4

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  1. Wilfling, Bernd & Maennig, Wolfgang, 2001. "Exchange rate dynamics in anticipation of time-contingent regime switching: modelling the effects of a possible delay," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 91-113, February.
  2. Frankel, Jeff & Froot, Ken, 1986. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," Department of Economics, Working Paper Series qt1972q8wm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  6. Kenneth A. Froot and Jeffrey A. Frankel., 1988. "Forward Discount Bias: Is It an Exchange Risk Premium?," Economics Working Papers 8874, University of California at Berkeley.
  7. Miller, Marcus & Sutherland, Alan, 1994. "Speculative Anticipations of Sterling's Return to Gold: Was Keynes Wrong?," Economic Journal, Royal Economic Society, vol. 104(425), pages 804-12, July.
  8. De Grauwe, Paul & Dewachter, Hans & Veestraeten, Dirk, 1999. "Explaining Recent European Exchange-Rate Stability," International Finance, Wiley Blackwell, vol. 2(1), pages 1-31, April.
  9. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-22, September.
  10. Charles Engel & Kenneth D. West, 2003. "Exchange rates and fundamentals," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  11. Balázs Égert & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in T ransition Economies: T aking Stock of the Issues," Working Papers 106, Oesterreichische Nationalbank (Austrian Central Bank).
  12. Jeffrey A. Frankel & Kenneth A. Froot, 1985. "Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations," NBER Working Papers 1672, National Bureau of Economic Research, Inc.
  13. De Grauwe, Paul & Dewachter, Hans & Veestraeten, Dirk, 1999. "Price dynamics under stochastic process switching: some extensions and an application to EMU1," Journal of International Money and Finance, Elsevier, vol. 18(2), pages 195-224, February.
  14. Attila Csajbãk & András Rezessy, 2006. "Hungary'S Eurozone Entry Date: What Do The Markets Think And What If They Change Their Minds?," Contemporary Economic Policy, Western Economic Association International, vol. 24(3), pages 343-356, 07.
  15. Djajic, Slobodan, 1989. "Dynamics of the exchange rate in anticipation of pegging," Journal of International Money and Finance, Elsevier, vol. 8(4), pages 559-571, December.
  16. Péter Karádi, 2005. "Exchange Rate Smoothing in Hungary," MNB Working Papers 2005/06, Magyar Nemzeti Bank (the central bank of Hungary).
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