Dynamic interactions between Central European currencies and the euro
Lucjan Orlowski () and
Matthew H. Roessler
Economic Systems, 2020, vol. 44, issue 3
We argue that the non-euro EU currencies of Central European countries have moved increasingly together with the euro in foreign exchange markets. To prove this point, we examine the dynamics of cross-elasticity between selected Central European currencies (the Czech koruna, Polish zloty, and Hungarian forint) and the euro exchange rates in U.S. dollar terms using daily data for the January 4, 2000 to April 5, 2019 sample period. We adopt the cross-elasticity model originally proposed and tested for the EU currencies by Orlowski (2016). To test the currency co-movements over time, we employ the Bai-Perron multiple breakpoint regression and two-state Markov switching tests. We find evidence of increasing co-movements between the Central European currencies and the euro that become particularly pronounced in times of financial distress. Co-movements of local exchange rates with the euro are also more pronounced during the euro-periphery sovereign debt crisis.
Keywords: Cross-elasticity of exchange rates; Central European currencies; Bai-Perron multiple breakpoint regression; Markov switching tests (search for similar items in EconPapers)
JEL-codes: E42 F15 F31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:44:y:2020:i:3:s0939362520300881
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