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Estimating Exchange Rate Dynamics with Diffusion Processes : An Application to Greek EMU Data

  • Wilfling, Bernd
  • Trede, Mark

Recently various exchange rate models capturing the dynamics during the transition from an exchange rate arrangement of floating rates into a currency union have been derived. Technically, these stochastic equilibrium models are diffusion processes which have to be estimated by discretely sampled observations. Using daily exchange rate data prior to the Greek EMU-entrance in January 2001 this paper develops a rigorous estimation procedure. The estimates provide statistical evidence of increased central bank intervention activities in the run-up to the Greek EMU entrance. Thus the modelling and estimation framework establishes an approach for detecting intervention phases in the absence of concrete intervention data.

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Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 267.

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Date of creation: 2004
Date of revision:
Handle: RePEc:zbw:hwwadp:267
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  1. Paul Krugman & Marcus Miller, 1992. "Exchange Rate Targets and Currency Bands," NBER Books, National Bureau of Economic Research, Inc, number krug92-1, December.
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  8. Antzoulatos, Angelos A. & Wilfling, Bernd, 2003. "Exchange and Interest Rates prior to EMU: The Case of Greece," HWWA Discussion Papers 244, Hamburg Institute of International Economics (HWWA).
  9. Froot, Kenneth & Obstfeld, Maurice, 1991. "Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach," CEPR Discussion Papers 522, C.E.P.R. Discussion Papers.
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