Co-movements of non-Euro EU currencies with the Euro

Lucjan Orlowski

International Review of Economics & Finance, 2016, vol. 45, issue C, 376-383

Abstract: This paper examines co-movements of non-euro EU Members' currencies and the euro during the 2000–2015 sample period. We propose a model of cross-elasticity of exchange rates and perform the Bai-Perron multiple break points, GARCH and BVAR estimations on the daily data series. The results show high positive cross-elasticity (co-movements) between the euro and the currencies of Denmark, Sweden, Poland, the Czech Republic and Hungary. For the Romanian lei, cross-elasticity with the euro is initially nonexistent but subsequently it is steadily increasing over the sample period. This implies a strong substitution between these currencies and the euro in foreign exchange markets. In contrast, cross-elasticity between the British pound and the euro is considerably lower. For all examined non-euro currencies substitution with the euro increases substantially during the 2008–2010 global financial crisis.

Keywords: Cross-elasticity of change rates; Euro adoption; Euro peg; Inflation targeting (search for similar items in EconPapers)
JEL-codes: E42 F15 F31 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:376-383

DOI: 10.1016/j.iref.2016.07.001

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