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Assessing the Volatility of the Euro on Foreign Exchange Markets: Further Empirical Evidence and Policy Implications

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  • Tronzano, Marco

    ()
    (Università degli Studi di Genova, Dipartimento di Economia e Metodi Quantitativi)

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    Abstract

    This paper assesses the validity of the ECB ‘benign neglect’ approach towards foreign exchange markets. I extend the analysis performed in Tronzano (2008) on the U$/Euro rate, applying a wide range of conditional volatility models to Yen/Euro data from 1999 to 2007. An overall evaluation of results, in the light of the literature on the welfare effects of nominal exchange rate volatility and optimal rules for open economies, reveals that the ECB inwardoriented approach was fully appropriate. In line with Tronzano (2008), this paper excludes therefore substantial welfare gains from a policy incorporating a systematic reaction to exchange rate dynamics.

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    Bibliographic Info

    Article provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.

    Volume (Year): 62 (2009)
    Issue (Month): 1 ()
    Pages: 103-131

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    Handle: RePEc:ris:ecoint:0016

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    Keywords: Exchange Rate Volatility; Garch Models; Monetary Policy Rules; ECB; Yen/Euro Exchange Rate;

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    1. Nicoletta Batini & Richard Harrison & Stephen P Millard, 2001. "Monetary policy rules for an open economy," Bank of England working papers 149, Bank of England.
    2. Chadha, Jagjit S & Sarno, Lucio & Valente, Giorgio, 2003. "Monetary Policy Rules, Asset Prices and Exchange Rates," CEPR Discussion Papers 4114, C.E.P.R. Discussion Papers.
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    10. Ivan Tchakarov & Paul Bergin, 2003. "Does Exchange Rate Risk Matter for Welfare?," Computing in Economics and Finance 2003 61, Society for Computational Economics.
    11. Paul Bergin & Hyung-Cheol Shin & Ivan Tchakarov, 2005. "Does Exchange Rate Variability Matter for Welfare? A Quantitative Investigation of Stabilization Policies," Working Papers 512, University of California, Davis, Department of Economics.
    12. Breedon, Francis & Hume, Michael, 2007. "Does the European Central Bank have a credibility problem?," Economics Letters, Elsevier, vol. 95(3), pages 438-442, June.
    13. Grégory Levieuge, 2006. "Règle de Taylor vs Règle-icm. Application à la zone euro," Revue économique, Presses de Sciences-Po, vol. 57(1), pages 85-121.
    14. Michel Beine & Sébastien Laurent, 2000. "La persistance des chocs de volatilité sur le marché des changes s'est-elle modifée depuis le debut des annees 1980 ?," Revue Économique, Programme National Persée, vol. 51(3), pages 703-711.
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