The Behaviour of Exchange Rates in the Central European Countries and Credit Default Risk Premiums
AbstractWe test whether the floating exchange rates of the EU New Member States against the euro are determined jointly within the panel VEC framework. We find that the exchange rates of the Czech koruna, the Polish zloty and the Hungarian forint follow the same long-run relationship, in which the real exchange rates are explained by the real interest rates parities and the spreads of the credit default risk premiums. In case of the Romanian leu, the common relationship is rejected, which is likely due to differences in the economic setting. The results confirm that the currency markets of these three countries are closely related, since the appreciation/depreciation of one currency leads to similar movements in the other currencies of the NMS. The estimated misalignments exhibit some common patterns in terms of time spans and percentage values of under/overvaluation.
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Bibliographic InfoArticle provided by CEJEME in its journal Central European Journal of Economic Modelling and Econometrics.
Volume (Year): 3 (2011)
Issue (Month): 4 (December)
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Web page: http://cejeme.org/
exchange rates; exchange rate misalignments; EU New Member States; panel VEC model; credit default swap;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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