IDEAS home Printed from
   My bibliography  Save this paper

Measuring Convergence Speed of Asset Prices Toward a Pre-Announced Target


  • Hans Dewachter
  • Dirk Veestraeten


In this paper we examine asset price dynamics (i.e. the convergence speed) in the event of pre-announced conversion values and dates. The theoretical framework for these dynamics has been developed in De Grauwe, Dewachter and Veestraeten (1999). We examine two instances of conversion, notably the 1879-Resumption of Specie Payments in the USA and the conversion of European currencies into the Euro on January 1, 1999. In our econometric model we treat the underlying fundamentals as unobservable and estimate their evolution via a Kalman filtering technique. Estimation results reveal values for the rate or speed of convergence that are in line with intuition and amount to levels well below (implicit) estimates listed in literature.

Suggested Citation

  • Hans Dewachter & Dirk Veestraeten, 1999. "Measuring Convergence Speed of Asset Prices Toward a Pre-Announced Target," Working Papers Department of Economics ces9902, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces9902

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Miller, Marcus & Sutherland, Alan, 1994. "Speculative Anticipations of Sterling's Return to Gold: Was Keynes Wrong?," Economic Journal, Royal Economic Society, vol. 104(425), pages 804-812, July.
    2. Klein, Michael W. & Lewis, Karen K., 1993. "Learning about intervention target zones," Journal of International Economics, Elsevier, vol. 35(3-4), pages 275-295, November.
    3. Meese, Richard A, 1986. "Testing for Bubbles in Exchange Markets: A Case of Sparkling Rates?," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 345-373, April.
    4. De Grauwe, Paul & Dewachter, Hans & Veestraeten, Dirk, 1999. "Price dynamics under stochastic process switching: some extensions and an application to EMU1," Journal of International Money and Finance, Elsevier, vol. 18(2), pages 195-224, February.
    5. Flood, Robert P. & Rose, Andrew K. & Mathieson, Donald J., 1991. "An empirical exploration of exchange-rate target-zones," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 7-65, January.
    6. Froot, Kenneth A. & Obstfeld, Maurice, 1991. "Exchange-rate dynamics under stochastic regime shifts : A unified approach," Journal of International Economics, Elsevier, vol. 31(3-4), pages 203-229, November.
    7. Flood, Robert P & Garber, Peter M, 1983. "A Model of Stochastic Process Switching," Econometrica, Econometric Society, vol. 51(3), pages 537-551, May.
    8. Burmeister, Edwin & Wall, Kent D., 1982. "Kalman filtering estimation of unobserved rational expectations with an application to the German hyperinflation," Journal of Econometrics, Elsevier, vol. 20(2), pages 255-284, November.
    9. Froot, Kenneth A & Obstfeld, Maurice, 1991. "Stochastic Process Switching: Some Simple Solutions," Econometrica, Econometric Society, vol. 59(1), pages 241-250, January.
    10. Gardeazabal, Javier & Regulez, Marta & Vazquez, Jesus, 1997. "Testing the Canonical Model of Exchange Rates with Unobservable Fundamentals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 389-404, May.
    11. Smith, Gregor W, 1991. "Solution to a Problem of Stochastic Process Switching," Econometrica, Econometric Society, vol. 59(1), pages 237-239, January.
    12. Burda, Michael & Gerlach, Stefan, 1993. "Exchange Rate Dynamics and Currency Unification: The Ostmark-DM Rate," Empirical Economics, Springer, vol. 18(3), pages 417-429.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Green, Christopher J. & Bai, Ye, 2008. "The euro: Did the markets cheer or jeer?," Journal of Policy Modeling, Elsevier, vol. 30(3), pages 431-446.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ete:ceswps:ces9902. 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: (library EBIB). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.