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The Euro Introduction and Non-Euro Currencies

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Author Info
Dick van Dijk () (Faculty of Economics, Erasmus Universiteit Rotterdam)
Haris Munandar () (Faculty of Economics, Erasmus Universiteit Rotterdam)
Christian M. Hafner () (Faculty of Economics, Erasmus Universiteit Rotterdam)

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Abstract

This paper documents the existence of large structural breaks in the unconditional correlations among the British pound, Norwegian krone, Swedish krona, Swiss franc, and euro exchange rates (against the US dollar) during the period 1994-2003. Using the framework of dynamic conditional correlation (DCC) models, we find that such breaks occurred both at the time the formal decision to proceed with the euro was made in December 1996 and at the time of the actual introduction of the euro in January 1999. In particular, we document that most correlations were substantially lower during the intermittent period. We also find breaks in unconditional volatilities at the same points in time, but these are of a much smaller magnitude comparatively.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-044/4.

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Date of creation: 12 May 2005
Date of revision: 08 Jun 2006
Handle: RePEc:dgr:uvatin:20050044

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Related research
Keywords: Exchange rates multivariate GARCH dynamic conditional correlation structural breaks

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
F31 - International Economics - - International Finance - - - Foreign Exchange
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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  1. Christos Savva & Denise R Osborn & Len Gill, 2005. "Volatility, spillover Effects and Correlations in US and Major European Markets," Money Macro and Finance (MMF) Research Group Conference 2005 23, Money Macro and Finance Research Group. [Downloadable!]
  2. C S Savva & D R Osborn & L Gill, 2005. "Spillovers and Correlations between US and Major European Stock Markets: The Role of the Euro," Centre for Growth and Business Cycle Research Discussion Paper Series 64, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
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