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Foreign Exchange Market Volatility in Eu Accession Countries in the Run-Up to Euro Adoption

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Author Info

  • István P. Székely
  • Ãdám Kóbor

Abstract

The paper analyzes foreign exchange market volatility in four Central European EU accession countries in 2001-2003. By using a Markov regime-switching model, it identifies two regimes representing high- and low-volatility periods. The estimation results show not only that volatilities are different between the two regimes but also that some of the cross-correlations differ. Notably, cross-correlations increase substantially for two pairs of currencies (the Hungarian forint-Polish zloty and the Czech koruna-Slovak koruna) in the high-volatility period. The paper concludes by discussing the policy implications of these findings.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/16.

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Length: 20
Date of creation: 01 Jan 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/16

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Related research

Keywords: Euro; Economic models; probability; exchange rate; correlations; foreign exchange; probabilities; exchange rates; exchange rate changes; foreign exchange market; time series; normal distributions; normal distribution; predictions; prediction; foreign exchange rate; daily exchange rate; exchange rate stability; exchange markets; autocorrelation; exchange rate regime; time series analysis; foreign exchange markets; foreign exchange rates; parameter estimations; statistical methods; covariances; statistical analysis; exchange rate variability; cointegration; stochastic process; home currency; random variable; exchange policy; fixed exchange rate regimes; correlation; parameter estimation; estimation result; econometrics; exchange rate regimes; covariance; exchange rate change; standard deviation; fixed exchange rate; average exchange rate; univariate distribution; exchange rate policy; currency depreciation;

This paper has been announced in the following NEP Reports:

References

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  1. Michael Dueker & Christopher J. Neely, 2006. "Can Markov switching models predict excess foreign exchange returns?," Working Papers 2001-021, Federal Reserve Bank of St. Louis.
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Citations

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Cited by:
  1. Michael Frömmel, 2010. "Volatility Regimes in Central and Eastern European Countries’ Exchange Rates," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(1), pages 2-21, February.
  2. Marcus Pramor & Natalia T. Tamirisa, 2006. "Common Volatility Trends in the Central and Eastern European Currencies and the Euro," IMF Working Papers 06/206, International Monetary Fund.
  3. Morar Triandafil, Cristina & Brezeanu, Petre & Huidumac, Catalin & Morar Triandafil, Adrian, 2011. "The Drivers of the CEE Exchange Rate Volatility - Empirical Perspective in the context of the Recent Financial Crisis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 212-229, March.
  4. Nikolaos Giannellis & Athanasios Papadopoulos, 2009. "What causes exchange rate volatility? Evidence from selected EMU members and candidates for EMU membership countries," Working Papers 1004, University of Crete, Department of Economics, revised 08 Jan 2010.
  5. Ales Bulir, 2004. "Liberalized Markets Have More Stable Exchange Rates," IMF Working Papers 04/35, International Monetary Fund.
  6. Bednarik, Radek, 2008. "Analýza volatility devizových kurzů vybraných ekonomik
    [The Analysis of Volatility of Selected Countries' Exchange Rates]
    ," MPRA Paper 15046, University Library of Munich, Germany.
  7. DeLisle Worrell & Andrea M. Maechler & Srobona Mitra, 2007. "Decomposing Financial Risks and Vulnerabilities in Eastern Europe," IMF Working Papers 07/248, International Monetary Fund.
  8. Juraj Stanèík, 2007. "Determinants of Exchange-Rate Volatility: The Case of the New EU Members," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(9-10), pages 414-432, October.

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