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Measuring Convergence of the New Member Countries’ Exchange Rates to the Euro

Author

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  • Bettina Becker
  • Stephen G. Hall

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Abstract

We propose a common factor approach to analyse convergence, which we implement using principal components analysis. This technique has not been used to analyse convergence of time series but is shown to provide a useful new tool. We show how it is in many ways a more natural way of approaching the convergence debate. We apply these ideas to a dataset of bilateral Euro and US-Dollar exchange rates of the new member countries of the European Union. Our empirical application gives sensible results about the convergence process of the new member countries’ exchange rates to the Euro.

Suggested Citation

  • Bettina Becker & Stephen G. Hall, 2009. "Measuring Convergence of the New Member Countries’ Exchange Rates to the Euro," Discussion Papers in Economics 09/2, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:09/2
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    File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp09-2.pdf
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    Cited by:

    1. Sibbertsen, Philipp & Wegener, Christoph & Basse, Tobias, 2014. "Testing for a break in the persistence in yield spreads of EMU government bonds," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 109-118.

    More about this item

    Keywords

    Convergence; exchange rates; transition economies; principal components analysis;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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