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Measuring Convergence of the New Member Countries’ Exchange Rates to the Euro

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  • Bettina Becker
  • Stephen G. Hall

    ()

Abstract

We propose a common factor approach to analyse convergence, which we implement using principal components analysis. This technique has not been used to analyse convergence of time series but is shown to provide a useful new tool. We show how it is in many ways a more natural way of approaching the convergence debate. We apply these ideas to a dataset of bilateral Euro and US-Dollar exchange rates of the new member countries of the European Union. Our empirical application gives sensible results about the convergence process of the new member countries’ exchange rates to the Euro.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp09-2.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 09/2.

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Date of creation: Jan 2009
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Handle: RePEc:lec:leecon:09/2

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
Phone: +44 (0)116 252 2887
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Web page: http://www2.le.ac.uk/departments/economics
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Keywords: Convergence; exchange rates; transition economies; principal components analysis;

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Cited by:
  1. Sibbertsen, Philipp & Wegener, Christoph & Basse, Tobias, 2013. "Testing for a Break in the Persistence in Yield Spreads of EMU Government Bonds," Hannover Economic Papers (HEP) dp-517, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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