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Stochastic behaviour of Deutsche mark exchange rates within EMS

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  • N. T. Laopodis

Abstract

This article explores the intertemporal interaction of three European Monetary System (EMS) exchange rates namely, the French franc, the Belgian franc, and the Italian lira vis-a-vis the Deutsche mark from 1979 to 1999. The returns were examined using the multivariate moving average Exponential GARCH model, which is capable of accounting for potential asymmetries in the volatility transmission mechanism. The results point to significant and reciprocal volatility spillovers among markets before Germany's reunification in 1990. However, absence of spillovers and/or asymmetric behaviour of volatility is shown in the post-unification period. The 1990s witnessed a rapid process of macroeconomic convergence by the core EMS members and these actions substantially enhanced confidence about full monetary integration. Put differently, the EMS countries became better attuned to the business cycle and managed to significantly reduce consequential asymmetric shocks and thus exchange rate volatility.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 13 (2003)
Issue (Month): 9 ()
Pages: 665-676

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Handle: RePEc:taf:apfiec:v:13:y:2003:i:9:p:665-676

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Citations

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Cited by:
  1. Conrad, Christian & Weber, Enzo, 2013. "Measuring Persistence in Volatility Spillovers," Working Papers 0543, University of Heidelberg, Department of Economics.
  2. Yu Hsing, 2007. "Analysis of exchange rate fluctuations in Estonia: test of the interest parity condition and the open economy model," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(1), pages 51-54, January.
  3. Michael J. Naylor & Lawrence C. Rose & Brendan J. Moyle, 2006. "Topology of Foreign Exchange Markets using Hierarchical Structure Methods," Papers physics/0608084, arXiv.org, revised Nov 2006.
  4. Yu Hsing, 2005. "Analysis of exchange rate fluctuations for Slovakia: application of an extended Mundell--Fleming model," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(5), pages 289-292, September.

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