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Exchange Rate Regimes and Volatility: Comparison of the Snake and Visegrad

  • Juraj Valachy

    ()

  • Evžen Ko?enda

    ()

Exchange rate stability was defined as one of the prerequisites for monetary integration in Europe. In this paper, we analyze recent developments in the volatility of exchange rates of the Central European countries (the Visegrad Group) and a selected group of European Union countries (the Snake) participating in the former European Monetary System. We compare volatilities in the currencies of both groups under specific exchange rate regimes using two different approaches to modeling exchange rate volatility: squared returns parametric model and GARCH. Both methods provide identical results for the currencies of the Visegrad group: an increase in volatility after a floating exchange rate regime was introduced. The case of the Snake countries exhibits mixed results for two currencies and a concurring result for the others: a decrease in volatility. In one case we are left with an insignificant coefficient. We consider the results as robust and suitable for policy making decisions.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp622.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2003-622.

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Length: 32 pages
Date of creation: 01 Oct 2003
Date of revision:
Handle: RePEc:wdi:papers:2003-622
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