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Volatility Regimes in Central and Eastern European Countries’ Exchange Rates

Michael Frömmel

Czech Journal of Economics and Finance (Finance a uver), 2010, vol. 60, issue 1, 2-21

Abstract: The author investigates changes between volatility regimes in five Central and Eastern European countries to analyze whether these changes are consistent with changes in the official exchange rate arrangements. The analysis merges two approaches, the GARCH model (Bollerslev, 1986) and the Markov switching model (Hamilton, 1989). The author discovers switches between high- and low-volatility regimes consistent with policy settings for Hungary, Poland, and, to a lesser extent, the Czech Republic, whereas Romania and Slovakia do not show a clear picture. Furthermore, he checks the robustness of the model regarding the choice of the error distribution and finds that heavy-tailed conditional distributions substantially improve the results.

Keywords: CEEC; exchange rate volatility; regime switching GARCH; Markov switching model; transition economies (search for similar items in EconPapers)
JEL-codes: E42 F31 F36 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Volatility Regimes in Central and Eastern European Countries’ Exchange Rates (2007) Downloads
Working Paper: Volatility Regimes in Central and Eastern European Countries' Exchange Rates (2006) Downloads
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