Credibility of Exchange Rate Policies in Selected EU New Members: Evidence from High Frequency Data

Jarko Fidrmuc and Roman Horvath

No 2006/28, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: We examine the daily exchange rate dynamics in selected EU new member states (Czech Republic, Poland, Romania, and Slovakia) using GARCH and TARCH models between 1999 and 2004. We show that these countries tried to reduce volatility of the spot exchange rate despite their official policy of free floating and inflation targeting. However, we find that the low credibility of exchange rate policy implied higher volatility of exchange rates when it substantially deviated from the implicit target rates for all countries. Finally, we find significant asymmetric effects of the volatility of exchange rates in all new member states.

Keywords: Exchange rates; target zones; ERM II; inflation targeting; GARCH (search for similar items in EconPapers)
JEL-codes: C22 C23 F31 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2006-10, Revised 2006-10
New Economics Papers: this item is included in nep-cba, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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