Monetary Convergence and Risk Premiums in the EU Accession Countries

Open Economies Review, Vol. 14, No. 3, pp. 251-267, Kluwer Academic Publishers, July 2003

Posted: 9 Feb 2005  

Lucjan T. Orlowski

Sacred Heart University - John F. Welch College of Business

Abstract

This study examines the impact of various monetary policy regimes on the ability to lower inflation and exchange rate risk premiums in the EU accession countries as they undergo monetary convergence to the eurozone. It proposes a monetary policy framework of flexible targeting of relative inflation risk premium that is believed to be credible and useful for managing these two categories of risk. A model of inflation and exchange rate risk premiums within the context of inflation targeting is developed. Recent trends in these risk premiums in Hungary, the Czech Republic and Poland are tested by employing the threshold ARCH (TARCH) model.

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

JEL Classification: E42, E52, F36, P24

Suggested Citation

Orlowski, Lucjan T., Monetary Convergence and Risk Premiums in the EU Accession Countries. Open Economies Review, Vol. 14, No. 3, pp. 251-267, Kluwer Academic Publishers, July 2003. Available at SSRN: https://ssrn.com/abstract=664187

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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