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Detection of implicit fluctuation bands and their credibility in EU candidate countries

Author

Listed:
  • Simón Sosvilla-Rivero

    (Complutense Institute for International Studies, Universidad Complutense de Madrid)

  • María del Carmen Ramos-Herrera

    (Universidad Complutense de Madrid)

Abstract

This paper attempts to identify implicit exchange-rate regimes for currencies of candidate countries vis-à-vis the euro. To that end, we apply three sequential procedures that consider the dynamics of exchange rates to data covering the period from 1999:01 to 2012:12. Our results would suggest that implicit bands have existed in many sub-periods for almost all currencies under study. Once we detect de facto discrepancies between de facto and de iure exchange-rate regimes, we make use of different methods to study the credibility of the detected fluctuation bands. The detected lack of credibility in a high percentage of the sample is robust to the use of several credibility tests, suggesting that economic agents do not behave as if these bands actually were in force at time of making their financial plans. These countries do not improve the confidence on the fluctuation bands as time evolves.

Suggested Citation

  • Simón Sosvilla-Rivero & María del Carmen Ramos-Herrera, 2015. "Detection of implicit fluctuation bands and their credibility in EU candidate countries," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 15(1), pages 18-37.
    • Handle: RePEc:bic:journl:v:15:y:2015:i:1:p:18-37
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    File URL: http://www.tandfonline.com/doi/pdf/10.1080/1406099X.2015.1066952
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
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    More about this item

    Keywords

    credibility; exchange rates; exchange-rate regimes; implicit fluctuation bands;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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