Abstract

http://ssrn.com/abstract=664783
 


 



Convergence of Exchange Rate and Inflation Risk Premiums in the Asian and Central European Emerging Market Economies


Lucjan T. Orlowski


Sacred Heart University - John F. Welch College of Business


Thammasat Economic Journal, Vol. 21, No. 3, pp. 114-144, September 2003

Abstract:     
This study investigates the link between the inflation risk and the exchange rate risk premiums in the six emerging market economies that have abandoned currency pegs and adopted independent monetary policies with flexible exchange rates. These risk premiums are examined in the selected Asian and Central European emerging market economies in the period following the major internatinal financial crisis of 1997-98. The study demonstrates that market interest rates in these countries have in fact responded effectively and proactively to shocks in these two risk premiums. Such responses of short-term market interest rates imply the prevalence of efficient financial markets and prove that monetary policies are capable of providing rational and effective responses to shocks in inflation and exchange rates. A model presenting interactions between both risk premiums is tested with OLS plus ARMA (1,1) as well as TARCH (1,1,1) procedures. The ability to lower these two risk premiums reflects gains in monetary policy credibility and can be viewed as a prerequisite for achieving financial stability in these emerging market economies.

Keywords: inflation risk, exchange rate risk, emerging market economies

JEL Classification: E44, F31, P51

Accepted Paper Series





Not Available For Download

Date posted: February 9, 2005  

Suggested Citation

Orlowski, Lucjan T., Convergence of Exchange Rate and Inflation Risk Premiums in the Asian and Central European Emerging Market Economies. Thammasat Economic Journal, Vol. 21, No. 3, pp. 114-144, September 2003. Available at SSRN: http://ssrn.com/abstract=664783

Contact Information

Lucjan T. Orlowski (Contact Author)
Sacred Heart University - John F. Welch College of Business ( email )
5151 Park Avenue
Fairfield, CT 06825
United States
203-371-7858 (Phone)
HOME PAGE: http://www.sacredheart.edu/ltorlowski.cfm
Feedback to SSRN


Paper statistics
Abstract Views: 506

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.265 seconds