Foreign Exchange Market Volatility in EU Accession Countries in the Run-up to Euro Adoption : Weathering Uncharted Waters
ISBN: 9781451891362
Platform/Publisher: Ebook Central / International Monetary Fund
Digital rights: Users: Unlimited; Printing: Limited; Download: 7 Days at a Time
Subjects: Economics; Business/ Management;

The paper analyzes foreign exchange market volatility in four Central European EU accession countries in 2001-2003. By using a Markov regime-switching model, it identifies two regimes representing high- and low-volatility periods. The estimation results show not only that volatilities are different between the two regimes but also that some of the cross-correlations differ. Notably, cross-correlations increase substantially for two pairs of currencies (the Hungarian forint-Polish zloty and the Czech koruna-Slovak koruna) in the high-volatility period. The paper concludes by discussing the policy implications of these findings.


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