Are the Exchange Rates of EMU Candidate Countries Anchored by their Expected Euro Locking Rates?

Anna Naszodi

Focus on European Economic Integration, 2007, issue 1, 115-134

Abstract: This paper examines whether the exchange rates of the Czech koruna, the Hungarian forint and the Polish zloty were anchored by the market expectations for their euro locking rates in the period from December 15, 2004, to August 3, 2006. First, I derive the process of the exchange rate as a function of the processes of the following three factors: latent exchange rate, market expectations for the euro locking rate and locking date. Then the expected final conversion rates are filtered. The time-varying volatilities of the state variables are estimated from cross-sectional data on option prices.

Date: 2007
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Working Paper: Are the exchange rates of EMU candidate countries anchored by their expected euro locking rates? (2008)
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