The Forward-Discount Puzzle in Central and Eastern Europe

Rob Hayward () and Jens Hölscher
Additional contact information
Rob Hayward: University of Brighton Business School

Comparative Economic Studies, 2017, vol. 59, issue 4, No 3, 472-497

Abstract: This paper adds to evidence that the forward-discount puzzle is at least in part explained as a compensation for taking crash risk. A number of Central and Eastern European exchange rates are compared. A hidden Markov model is used to identify two regimes for most of the exchange rates. These two regimes can be characterised as being either periods of calm or periods of crisis The level of international risk aversion and changes in US interest rates affect the probability of switching from one regime to the other. This model is then used to assess the way that these two factors affect the probability of a currency crisis. While the Czech Republic, Hungary and Bulgaria are very sensitive to international financial conditions, Poland and Romania are relatively immune.

Keywords: exchange rates; uncovered interest parity; foreign exchange risk discount; hidden Markov model; carry-trade; C24; F31; F32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41294-017-0033-5 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:compes:v:59:y:2017:i:4:d:10.1057_s41294-017-0033-5

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41294/PS2

DOI: 10.1057/s41294-017-0033-5

Access Statistics for this article

Comparative Economic Studies is currently edited by Nauro Campos

More articles in Comparative Economic Studies from Palgrave Macmillan, Association for Comparative Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().