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Volatility Regimes in Central and Eastern European Countries’ Exchange Rates

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Author Info
M. FRÖMMEL ()

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Abstract

The choice of an exchange rate arrangement affects exchange rate volatility: higher flexibility goes ahead with increasing volatility and vice versa (Flood and Rose 1995, 1999). We investigate five Central and Eastern European countries between 1994 and 2004. The analysis merges two approaches, the GARCH-model (Bollerslev 1986) and the Markov Switching- Model (Hamilton 1989). We discover switches between high and low volatility regimes consistent with policy settings for Hungary, Poland and, less pronounced, the Czech Republic, whereas Romania and Slovakia do not show a clear picture.

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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 07/487.

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Length: 37 pages
Date of creation: Oct 2007
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Handle: RePEc:rug:rugwps:07/487

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Keywords: CEEC exchange rate volatility regime switching GARCH Markov switching model transition economies

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
F31 - International Economics - - International Finance - - - Foreign Exchange
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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