The euro and the volatility of exchange rates

Amalia Morales-Zumaquero and Simon Sosvilla-Rivero ()
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Amalia Morales-Zumaquero: Universidad de Málaga

No 10-01, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: This paper attempts to determine whether or not the introduction of the euro affected the volatility of bilateral exchange rates all over the world. To that end, we examine the exchange rate behaviour for a set of OECD and non-OECD countries during the 1993-2007 period. Two econometric methods are implemented for this purpose: the OLS-based tests to detect multiple structural breaks, as proposed by Bai and Perron (1998, 2003), and several procedures based on Information Criterion together with the so-called sequential procedure suggested by Bai and Perron (2003). Although results suggest evidence of structural breaks in volatility across investigated variables, there is high heterogeneity regarding the located dates. Moreover, the realignments in the Exchange Rate Mechanism seem to play a significant role in the reduction of volatility in some European countries and transition economies.

Keywords: Exchange rates; volatility (search for similar items in EconPapers)
JEL-codes: F3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-ifn and nep-mon
Date: 2010-05
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Journal Article: The euro and the volatility of exchange rates (2011)
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Persistent link: http://EconPapers.repec.org/RePEc:aee:wpaper:1001

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