Exchange Rate Regimes and Volatility: Comparison of the Snake and Visegrad
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); CESifo; University of Michigan at Ann Arbor - The William Davidson Institute; Osteuropa Institut; Centre for Economic Policy Research (CEPR)
William Davidson Institute Working Paper No. 622
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.
Number of Pages in PDF File: 32
Keywords: exchange rate regime, volatility, transition, integration, Central Europe, European Union, nonlinearity, interest rate parity
JEL Classification: C14, C22, C51, E43, F31, F33, F36, P59working papers series
Date posted: November 22, 2003
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