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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 zloty 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 final conversion rates are filtered. The time-varying volatilities of the state variables are estimated from cross-sectional data on option prices.

Suggested Citation

  • Anna Naszódi, 2007. "Are the Exchange Rates of EMU Candidate Countries Anchored by their Expected Euro Locking Rates?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 115-134.
    • Handle: RePEc:onb:oenbfi:y:2007:i:1:b:4
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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