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Convergence in exchange rates: market's view on CE-4 joining EMU

Oxana Babetskaia-Kukharchuk, Ian Babetskii and Jiri Podpiera
Authors registered in the RePEc Author Service: Oxana Babecká-Kucharčuková and Jan Babecký

Applied Economics Letters, 2008, vol. 15, issue 5, 385-390

Abstract: We empirically analyse currency fluctuations in four central European states (CE-4) against the USD and Euro, employing daily data over 1 January 1994 to 10 October 2005 and constructing a dynamic correlation coefficient based on the estimates of a bivariate generalized autoregressive conditional heteroscedasticity model. We find evidence of convergence in exchange rate volatilities between CE-4 currencies and the Euro. In other words, from the US market's point of view, currencies of the CE-4 region and the Euro tend to behave quite similarly. This degree of synchronicity is in line with the composition of currency baskets and the share of the Euro as a trade-invoicing currency in the CE-4 economies.

Date: 2008
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DOI: 10.1080/13504850600705984

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