Exchange Rate Regimes and Volatility: Comparison of the Snake and Visegrad

32 Pages Posted: 22 Nov 2003

See all articles by Juraj Valachy

Juraj Valachy

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Evzen Kocenda

Charles University in Prague - Institute of Economic Studies; Institute of Information Theory and Automation (Czech Academy of Sciences) - Department of Econometrics; CESifo; University of Regensburg - Institute for East and Southeast European Studies; University of Michigan at Ann Arbor - The William Davidson Institute

Date Written: October 2003

Abstract

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.

Keywords: exchange rate regime, volatility, transition, integration, Central Europe, European Union, nonlinearity, interest rate parity

JEL Classification: C14, C22, C51, E43, F31, F33, F36, P59

Suggested Citation

Valachy, Juraj and Kocenda, Evzen, Exchange Rate Regimes and Volatility: Comparison of the Snake and Visegrad (October 2003). William Davidson Institute Working Paper No. 622. Available at SSRN: https://ssrn.com/abstract=463120 or http://dx.doi.org/10.2139/ssrn.463120

Juraj Valachy (Contact Author)

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

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HOME PAGE: http://www.cerge-ei.cz

Evzen Kocenda

Charles University in Prague - Institute of Economic Studies ( email )

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Czech Republic

HOME PAGE: http://kocenda.fsv.cuni.cz

Institute of Information Theory and Automation (Czech Academy of Sciences) - Department of Econometrics ( email )

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CESifo

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University of Regensburg - Institute for East and Southeast European Studies

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Regensburg, 93047
Germany

University of Michigan at Ann Arbor - The William Davidson Institute

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Ann Arbor, MI 48109-1234
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