Czech Koruna and Polish Zloty Currency Options: Information Contnent and Eu-Accession Implications

Armando Méndez Morales

No 2000/091, IMF Working Papers from International Monetary Fund

Abstract: Currency option implied volatility predicts more efficiently exchange rate volatility for the Polish zloty relative to the Czech koruna, reflecting differences in the frequency of central bank intervention in the foreign exchange market. A GARCH model shows a positive impact of the introduction of the Euro on exchange rate volatility for the Polish zloty (negative for the Czech koruna), related to its larger exposure to external shocks. For countries in transition to Euro integration, the implied trade-off between isolation from shocks and efficient signaling must be addressed based on the risk of exchange rate misalignment at the time of monetary conversion.

Keywords: WP; exchange rate; Poland; central bank intervention; foreign exchange market; currency; volatility; Eastern Europe; Euro; options; integration; exchange rate band; volatility fluctuation; return equation; option market; exchange rate volatility; exchange rate return; Euro exchange rate; exchange rate depreciation; Euro market; Exchange rates; Currency markets; Central bank operations; Currencies; Crawling peg (search for similar items in EconPapers)
Pages: 36
Date: 2000-06-01
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