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The Relevance of Inflation and Exchange Rate Risk for Monetary Convergence to the Eurozone

Journal of Emerging Markets, Vol. 8, No 2, pp. 5-15, Summer 2003

Posted: 8 Feb 2005  

Lucjan T. Orlowski

Sacred Heart University - John F. Welch College of Business

Abstract

This study places a strong emphasis on the ability of Central European countries to lower inflation and exchange rate risk premiums on their path of monetary convergence to the eurozone. A model of the nexus between both risk premiums is presented along with the recent evidence supporting well-coordinated interactions between these risk premiums for Poland, Hungary and the Czech Republic. The analysis implies that monetary policies based on direct inflation targeting are likely to contain these risk premiums in the candidate countries and can be effectively used during the remaining period of their preparations for entering the euro area.

Keywords: Inflation risk premium, exchange rate risk premium, common currency area, inflation targeting, transition economies

JEL Classification: E32, E52, P33

Suggested Citation

Orlowski, Lucjan T., The Relevance of Inflation and Exchange Rate Risk for Monetary Convergence to the Eurozone. Journal of Emerging Markets, Vol. 8, No 2, pp. 5-15, Summer 2003. Available at SSRN: https://ssrn.com/abstract=664192

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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