Post-Communist Countries of the EU and the Euro: Dynamic Linkages between Exchange Rates

Nikolaos Stoupos () and Apostolos Kiohos
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Apostolos Kiohos: Department of International and European Studies, University of Macedonia, Thessaloniki, Greece

Acta Oeconomica, 2017, vol. 67, issue 4, 511-538

Abstract: The sovereign debt crisis of 2010 in the euro area significantly decelerated the monetary integration of the EU. The main purpose of this paper is to explore whether five post-communist member states of the EU are mature enough to adopt the euro. We used nominal exchange rates in the error correction model with asymmetric power ARCH (ECM-APARCH). Our results highlight that EU membership positively increased the impact of the euro on the currency of each of these countries in the short-run. In contrast, the long-term effect of the euro on each currency is negative for the Czech Republic, Hungary, and Croatia. Wholly different results were obtained for Poland and Romania. The APARCH model showed that the negative responses of the euro had a greater or neutral effect on the conditional variance of each currency instead of the positive responses. The debt crisis of the euro area had no impact on the dynamic linkages between the currencies. Our research concludes that Croatia, the Czech Republic, and Hungary are not ready to join the euro area in the near future. On the other hand, the currencies of Poland and Romania are already aligned with the fluctuations of the euro.

Keywords: volatility; exchange rates; ECM-APARCH; linkages; euro zone enlargement; post-communist economies; rolling regression; EU unification (search for similar items in EconPapers)
JEL-codes: C13 F3 F31 G15 G17 G32 (search for similar items in EconPapers)
Date: 2017
Note: We are especially grateful to the referees of Acta Oeconomica for their comments, as well as to Associate Professor George Filis (Bournemouth University, UK) for his continuous aid, support, and guidance during the completion of this research.
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