The Euro and the Volatility of Exchange Rates

DEFI Working Paper No. 10-01

24 Pages Posted: 17 Jul 2010

See all articles by Amalia Morales-Zumaquero

Amalia Morales-Zumaquero

University of Malaga - Departamento de Teoria e Historia Economica

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: July, 15 2010

Abstract

This paper attempts to determine whether or not the introduction of the euro affected the volatility of bilateral exchange rates all over the world. To that end, we examine the exchange rate behaviour for a set of OECD and non-OECD countries during the 1993-2007 period. Two econometric methods are implemented for this purpose: the OLSbased tests to detect multiple structural breaks, as proposed by Bai and Perron (1998, 2003), and several procedures based on Information Criterion together with the so-called sequential procedure suggested by Bai and Perron (2003). Although results suggest evidence of structural breaks in volatility across investigated variables, there is high heterogeneity regarding the located dates. Moreover, the realignments in the Exchange Rate Mechanism seem to play a significant role in the reduction of volatility in some European countries and transition economies.

Keywords: Euro, multiple structural breaks, volatility

JEL Classification: F31, F33, F41

Suggested Citation

Morales-Zumaquero, Amalia and Sosvilla-Rivero, Simon, The Euro and the Volatility of Exchange Rates (July, 15 2010). DEFI Working Paper No. 10-01. Available at SSRN: https://ssrn.com/abstract=1640333 or http://dx.doi.org/10.2139/ssrn.1640333

Amalia Morales-Zumaquero

University of Malaga - Departamento de Teoria e Historia Economica ( email )

Malaga, Málaga 29004
Spain

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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