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Convergence in exchange rates: market's view on CE-4 joining EMU

  • Oxana Babetskaia-Kukharchuk
  • Ian Babetskii
  • Jiri Podpiera

We empirically analyse currency fluctuations in four central European states (CE-4) against the USD and Euro, employing daily data over 1 January 1994 to 10 October 2005 and constructing a dynamic correlation coefficient based on the estimates of a bivariate generalized autoregressive conditional heteroscedasticity model. We find evidence of convergence in exchange rate volatilities between CE-4 currencies and the Euro. In other words, from the US market's point of view, currencies of the CE-4 region and the Euro tend to behave quite similarly. This degree of synchronicity is in line with the composition of currency baskets and the share of the Euro as a trade-invoicing currency in the CE-4 economies.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 15 (2008)
Issue (Month): 5 ()
Pages: 385-390

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Handle: RePEc:taf:apeclt:v:15:y:2008:i:5:p:385-390
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