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Extreme Risks in Financial Markets and Monetary Policies of the Euro-Candidates

Author Info

  • Hubert Gabrisch

    ()

    (Halle Institute for Economic Research, Kleine M&aauml;rkerstrasse 8, 06108 Halle (Saale), Germany.)

  • Lucjan T Orlowski

    ()

    ([2] J.F. Welch College of Business, Sacred Heart University, 5151 Park Avenue, Fairfield, CT 06825, USA.)

Abstract

This study investigates extreme tail risks in financial markets of the euro-candidate countries and their implications for monetary policies. Our empirical tests show the prevalence of extreme risks in the conditional volatility series of selected financial variables, that is, interbank rates, equity market indexes and exchange rates. We argue that excessive instability of key target and instrument variables should be mitigated by monetary policies. Central banks in these countries will be well-advised to use both standard and unorthodox (discretionary) tools of monetary policy while steering their economies out of the financial crisis and through the euro-convergence process.

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Article provided by Palgrave Macmillan in its journal Comparative Economic Studies.

Volume (Year): 53 (2011)
Issue (Month): 4 (December)
Pages: 511-534

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Handle: RePEc:pal:compes:v:53:y:2011:i:4:p:511-534
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  1. Lars E. O. Svensson, 2003. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 426-477, June.
  2. Vasco Cúrdia & Michael Woodford, 2009. "Conventional and unconventional monetary policy," Staff Reports 404, Federal Reserve Bank of New York.
  3. Polito, Vito & Wickens, Michael R., 2008. "Optimal Monetary Policy using a VAR," CEPR Discussion Papers 6957, C.E.P.R. Discussion Papers.
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  5. Clemens Jobst, 2009. "Monetary Policy Implementation during the Crisis in 2007 to 2008," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 53–77.
  6. Hanousek, Jan & Kocenda, Evzen & Kutan, Ali M., 2009. "The reaction of asset prices to macroeconomic announcements in new EU markets: Evidence from intraday data," Journal of Financial Stability, Elsevier, vol. 5(2), pages 199-219, June.
  7. Evzen Kocenda & Jan Hanousek, 2010. "Foreign News and Spillovers in Emerging European Stock Markets," William Davidson Institute Working Papers Series wp983, William Davidson Institute at the University of Michigan.
  8. Ahrend, Rudiger, 2008. "Monetary Ease: A Factor behind Financial Crises? Some Evidence from OECD Countries," Economics Discussion Papers 2008-44, Kiel Institute for the World Economy.
  9. Evzen Kocenda & Ali M. Kutan & Taner M. Yigit, 2005. "Pilgrims to the Eurozone: How Far, How Fast?," CERGE-EI Working Papers wp279, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  10. 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.
  11. Kocenda, Evzen & Valachy, Juraj, 2006. "Exchange rate volatility and regime change: A Visegrad comparison," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 727-753, December.
  12. 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.
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Cited by:

  1. Orlowski, Lucjan T., 2012. "Financial crisis and extreme market risks: Evidence from Europe," Review of Financial Economics, Elsevier, vol. 21(3), pages 120-130.

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