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Attila Csajbók - András Rezessy : Hungary's euro zone entry date: what do the markets think and what if they change their minds?

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Author Info

  • Attila Csajbók

    ()
    (Magyar Nemzeti Bank)

  • András Rezessy

    ()
    (Magyar Nemzeti Bank)

Abstract

This article investigates the potential impact of a shift in market expectations about a country’s eurozone entry date on long-term yields and the spot exchange rate in a simple uncovered interest parity (UIP) framework. The results suggest that the size of the reactions depend on how far the entry date is postponed, how far current inflation is from the Maastricht-satisfying level, and whether the credibility of the central bank’s target inflation path is sensitive to changes in the expected entry date. In the empirical part, the authors apply the framework for Hungary and draw some policy conclusions for the timing of ERM II entry.

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Bibliographic Info

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Occasional Papers with number 2005/37.

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Length: 43 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:mnb:opaper:2005/37

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Web page: http://www.mnb.hu/
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Keywords: monetary policy; monetary union; expectations; euro zone entry; uncovered interest parity.;

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