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Determinants of the Dinar-Euro Nominal Exchange Rate

Author

Listed:
  • Milan Nedeljkovic

    (National Bank of Serbia)

  • Branko Urosevic

    (National Bank of Serbia)

Abstract

This paper studies drivers of daily dynamics of the nominal dinar-euro exchange rate from September 2006 to June 2010. Using a novel semiparametric approach we are able to incorporate the evidence of nonlinearities under very weak assumptions on the underlying data generating process. We identify several factors influencing daily exchange rate returns whose importance varies over time. In the period preceeding the financial crisis, information in past returns, changes in households’ foreign currency savings and banks' net purchases of foreign currency are the most significant factors. From September 2008 onwards other factors related to changes in country's risk and the information processing in the market gain importance. NBS interventions are found to be effective with a time delay.

Suggested Citation

  • Milan Nedeljkovic & Branko Urosevic, 2011. "Determinants of the Dinar-Euro Nominal Exchange Rate," Working papers 18, National Bank of Serbia.
    • Handle: RePEc:nsb:wpaper:18
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign exchange market; Partially linear model; Kernel estimation;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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