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Volatility Regimes in Central and Eastern European Countries’ Exchange Rates

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  • M. FRÖMMEL

Abstract

The choice of an exchange rate arrangement affects exchange rate volatility: higher flexibility goes ahead with increasing volatility and vice versa (Flood and Rose 1995, 1999). We investigate five Central and Eastern European countries between 1994 and 2004. The analysis merges two approaches, the GARCH-model (Bollerslev 1986) and the Markov Switching- Model (Hamilton 1989). We discover switches between high and low volatility regimes consistent with policy settings for Hungary, Poland and, less pronounced, the Czech Republic, whereas Romania and Slovakia do not show a clear picture.

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  • M. Frömmel, 2007. "Volatility Regimes in Central and Eastern European Countries’ Exchange Rates," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/487, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:07/487
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    More about this item

    Keywords

    CEEC; exchange rate volatility; regime switching GARCH; Markov switching model; transition economies;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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