Detection of Implicit Fluctuation Bands in the European Union Countries
21 Pages Posted: 19 May 2015
Date Written: May 19, 2015
This paper attempts to identify implicit exchange rate regimes for currencies of European Union member states vis-à-vis the euro. To that end, we apply three sequential procedures that consider the dynamics of exchange rates to data covering the period from 1999:01 to 2012:12 for twelve European countries. Our results indicate the presence of ± 2% and ± 1% implicit fluctuation bands in high percentages of the sample period even reach 100% in countries such as Bulgaria, Cyprus and Slovenia, among others. This paper provides new empirical evidence that strengthens the hypothesis of that the implemented policies differ from those announced by the monetary authorities, identifying the existence of de facto fixed monetary systems along large number of sub-periods for different currencies. It seems that the countries under study try to capture the benefits of their participation in the ERM-II moderating somewhat the potential problems arising from formal participation in the ERM-II.
Keywords: Exchange-rate regimes, Implicit fluctuation bands, Exchange rates, De facto and de iure fixed regimes
JEL Classification: F31, F33
Suggested Citation: Suggested Citation