Ability of the New EU Member States to Fulfill the Exchange Rate Stability Convergence Criterion
AbstractThis paper assesses exchange rate development and volatility in six new EU member states (Cyprus, Czech Republic, Hungary, Poland, Slovakia, and Slovenia) during the period November 1996 - April 2006. The study is motivated by the unavoidable participation of the new member states’ currencies in the Exchange Rate Mechanism II and fulfillment of the exchange rate stability convergence criterion. The development of exchange rates is examined by the calculation of various rates of return and the exchange rate volatility is analyzed using moving average standard deviations of the annualized daily returns of the nominal bilateral exchange rates. The results suggest that the dilemma of “participation or non-participation in ERM II” have been solved properly so far by all countries analyzed. The three ERM II participating currencies (SIT, CYP, SKK) entered into the mechanism at the optimal time of stable exchange rate development and low volatility. On the other hand, the admissible fluctuation band ± 2.25 % seems to be still too narrow for the remaining three currencies (CZK, HUF, PLN), thus the currencies should remain out of ERM II for some time.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 1202.
Date of creation: May 2006
Date of revision:
exchange rates; rate of return; volatility; ERM II; exchange rate stability criterion; new EU Member States;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-12 (All new papers)
- NEP-CBA-2007-05-12 (Central Banking)
- NEP-EEC-2007-05-12 (European Economics)
- NEP-IFN-2007-05-12 (International Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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