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Monetary Convergence and Risk Premiums in the EU Candidate Countries


Lucjan T. Orlowski


Sacred Heart University - John F. Welch College of Business

November 2002

ZEI Working Paper No. B 26 2002

Abstract:     
This study examines the link between various monetary policy regimes and the ability to manage inflation and exchange rate risk premiums in the EU candidate countries as they undergo monetary convergence to the eurozone. The underlying hypothesis is that a system of 'flexible inflation targeting' may be an optimal policy choice for managing these two categories of risk. A model of inflation and exchange rate risk premiums within the context of inflation targeting is proposed. Recent trends in these risk premiums in Hungary, the Czech Republic and Poland are tested by using the GARCH (1,1) methodology.

Number of Pages in PDF File: 36

Keywords: Inflation risk premium, exchange rate risk premium, inflation targeting, monetary convergence, transition economies

JEL Classification: E32, E52, P33

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Date posted: February 11, 2005  

Suggested Citation

Orlowski, Lucjan T., Monetary Convergence and Risk Premiums in the EU Candidate Countries (November 2002). ZEI Working Paper No. B 26 2002. Available at SSRN: http://ssrn.com/abstract=665441 or http://dx.doi.org/10.2139/ssrn.665441

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
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