IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Exchange rate volatility and regime change: A Visegrad comparison

  • Kocenda, Evzen
  • Valachy, Juraj

Exchange rate stability was defined as one of the prerequisites for monetary integration in Europe. In this paper, we analyze recent developments in the volatility of exchange rates of the Central European countries (the Visegrad Group) and a selected group of European Union countries (the Snake) participating in the former European Monetary System. We compare volatilities in the currencies of both groups under specific exchange rate regimes using two different approaches to modeling exchange rate volatility: squared returns parametric model and GARCH. Both methods provide identical results for the currencies of the Visegrad group: an increase in volatility after a floating exchange rate regime was introduced. The case of the Snake countries exhibits mixed results for two currencies and a concurring result for the others: a decrease in volatility. In one case we are left with an insignificant coefficient. We consider the results as robust and suitable for policy making decisions.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0147-5967(06)00046-1
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 34 (2006)
Issue (Month): 4 (December)
Pages: 727-753

as
in new window

Handle: RePEc:eee:jcecon:v:34:y:2006:i:4:p:727-753
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

References listed on IDEAS
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.:

as in new window
  1. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
  2. Roberto Golinelli & Riccardo Rovelli, 2002. "Monetary Policy Transmission, Interest Rate Rules and Inflation Targeting in Three Transition Countries," Eastward Enlargement of the Euro-zone Working Papers wp10, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Aug 2002.
  3. Francesco Battaglia & Lia Orfei, 2005. "Outlier Detection And Estimation In NonLinear Time Series," Journal of Time Series Analysis, Wiley Blackwell, vol. 26(1), pages 107-121, 01.
  4. Evzen Kocenda, 1999. "Detecting Structural Breaks: Exchange Rates in Transition Economies," CERGE-EI Working Papers wp149, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  5. Jurgen A. Doornik & Marius Ooms, 2005. "Outlier Detection in GARCH Models," Economics Papers 2005-W24, Economics Group, Nuffield College, University of Oxford.
  6. Rose, A.K. & Svensson, L.E.O., 1993. "European Exchange Rate Credibility Before the Fall," Papers 542, Stockholm - International Economic Studies.
  7. Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers 646, Stockholm University, Institute for International Economic Studies.
  8. Bansal, Ravi & Dahlquist, Magnus, 1999. "The Forward Premium Puzzle: Different Tales from Developed and Emerging Economies," CEPR Discussion Papers 2169, C.E.P.R. Discussion Papers.
  9. Lucjan Orlowski, 2003. "Monetary Convergence and Risk Premiums in the EU Accession Countries," Open Economies Review, Springer, vol. 14(3), pages 251-267, July.
  10. Bofinger, Peter & Wollmershäuser, Timo, 2001. "Is there a third way to EMU for the EU accession countries?," Munich Reprints in Economics 20209, University of Munich, Department of Economics.
  11. Coricelli, Fabrizio & Jazbec, Bostjan & Masten, Igor, 2006. "Exchange rate pass-through in EMU acceding countries: Empirical analysis and policy implications," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1375-1391, May.
  12. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  13. Stockman, Alan C., 1988. "Real exchange-rate variability under pegged and floating nominal exchange-rate systems: An equilibrium theory," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 259-294, January.
  14. Jorion, Philippe, 1995. " Predicting Volatility in the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 50(2), pages 507-28, June.
  15. Ratna Sahay & R. G Gelos, 2000. "Financial Market Spillovers in Transition Economies," IMF Working Papers 00/71, International Monetary Fund.
  16. Hau, Harald, 2002. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 611-30, August.
  17. Benjamin M. Friedman & David I. Laibson, 1989. "Economic Implications of Extraordinary Movements in Stock Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(2), pages 137-190.
  18. Andrea Brasili & Bruno Sitzia, 2003. "Risk Related Non Linearities in Exchange Rates: Evidence from a Panel of Central and Eastern European Countries," Open Economies Review, Springer, vol. 14(2), pages 135-155, April.
  19. Lucjan Orlowski & Krzyzstof Rybinski, 2005. "Implications of ERM2 for Poland’s Monetary Policy," William Davidson Institute Working Papers Series wp802, William Davidson Institute at the University of Michigan.
  20. Lúcio Vinhas de Souza, 2002. "Integrated Monetary and Exchange Rate Frameworks," Tinbergen Institute Discussion Papers 02-054/2, Tinbergen Institute.
  21. Orlowski, Lucjan T., 2005. "Monetary convergence of the EU accession countries to the eurozone: A theoretical framework and policy implications," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 203-225, January.
  22. Michael Woodford, 2005. "Central Bank Communication and Policy Effectiveness," NBER Working Papers 11898, National Bureau of Economic Research, Inc.
  23. Ait-Sahalia, Yacine, 1996. "Testing Continuous-Time Models of the Spot Interest Rate," Review of Financial Studies, Society for Financial Studies, vol. 9(2), pages 385-426.
  24. Jurgen Doornik & Marius Ooms, 2005. "Outlier Detection in GARCH Models," Economics Series Working Papers 2005-W24, University of Oxford, Department of Economics.
  25. Papell, David H., 1992. "Can equilibrium models explain nominal exchange regime non-neutrality? Evidence from the European monetary system," Journal of International Money and Finance, Elsevier, vol. 11(1), pages 96-106, February.
  26. Ian Babetskii, 2005. "Trade integration and synchronization of shocks," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(1), pages 105-138, 01.
  27. Lucjan T Orlowski, 2005. "Exchange Rate Risk and Convergence to the Euro," Macroeconomics 0501034, EconWPA.
  28. Leitemo, Kai, 2004. "A game between the fiscal and the monetary authorities under inflation targeting," European Journal of Political Economy, Elsevier, vol. 20(3), pages 709-724, September.
  29. Hallett, Andrew Hughes & Anthony, Myrvin L., 1997. "Exchange rate behaviour under the EMS regime: was there any systematic change?," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 537-560, August.
  30. Charles, Amelie & Darne, Olivier, 2005. "Outliers and GARCH models in financial data," Economics Letters, Elsevier, vol. 86(3), pages 347-352, March.
  31. Orlowski, Lucjan T., 2001. "From inflation targeting to the euro-peg: A model of monetary convergence for transition economies," Economic Systems, Elsevier, vol. 25(3), pages 233-251, September.
  32. Chinn, Menzie D., 2006. "The (partial) rehabilitation of interest rate parity in the floating rate era: Longer horizons, alternative expectations, and emerging markets," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 7-21, February.
  33. Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
  34. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  35. Szapary, Gyorgy & Jakab, Zoltan M., 1998. "Exchange Rate Policy in Transition Economies: The Case of Hungary," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 691-717, December.
  36. Juan Ayuso & M.P. Jurado & Fernando Restoy, 1994. "Is Exchange Rate Risk Higher in the E.R.M. after the Widening of Fluctuation Bands?," Working Papers 9419, Banco de España;Working Papers Homepage.
  37. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
  38. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  39. Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March.
  40. Baillie, Richard T. & Bollerslev, Tim, 2000. "The forward premium anomaly is not as bad as you think," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 471-488, August.
  41. Kutan, Ali M. & Yigit, Taner M., 2004. "Nominal and real stochastic convergence of transition economies," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 23-36, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jcecon:v:34:y:2006:i:4:p:727-753. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.