Foreign Exchange Market Volatility in Eu Accession Countries in the Run-Up to Euro Adoption : Weathering Uncharted Waters

The paper analyzes foreign exchange market volatility in four Central European EU accession countries in 2001-2003. By using a Markov regime-switching model, it identifies two regimes representing high- and low-volatility periods. The estimation results show not only that volatilities are different between the two regimes but also that some of the cross-correlations differ. Notably, cross-correlations increase substantially for two pairs of currencies (the Hungarian forint-Polish zloty and the Czech koruna-Slovak koruna) in the high-volatility period. The paper concludes by discussing the policy implications of these findings.
Publication date: January 2004
ISBN: 9781451843439
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Money and Monetary Policy , Money and Monetary Policy , Markov regime-switching model , EU accession countries , probability , exchange rate , correlations , foreign exchange , probabilities , Econometric and Statistical Methods: General , General Financial Markets: General (includes Measurement and Data) , Slovakia

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