Foreign Exchange Market Volatility in Eu Accession Countries in the Run-Up to Euro Adoption: Weathering Uncharted Waters

Istvan P Szekely and Ádám Kóbor

No 2004/016, IMF Working Papers from International Monetary Fund

Abstract: The paper analyzes foreign exchange market volatility in four Central European EU accession countries in 2001-2003. By using a Markov regime-switching model, it identifies two regimes representing high- and low-volatility periods. The estimation results show not only that volatilities are different between the two regimes but also that some of the cross-correlations differ. Notably, cross-correlations increase substantially for two pairs of currencies (the Hungarian forint-Polish zloty and the Czech koruna-Slovak koruna) in the high-volatility period. The paper concludes by discussing the policy implications of these findings.

Keywords: WP; state; State probability estimate; Markov regime-switching model; foreign exchange market volatility; EU accession countries; regime-switching model; high-volatility regime; regime persistence; model estimation result; Exchange rate adjustments; Currencies; Currency markets; Exchange rates; Foreign exchange intervention; Baltics; Global (search for similar items in EconPapers)
Pages: 20
Date: 2004-01-01
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Citations: View citations in EconPapers (13)

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Journal Article: Foreign exchange market volatility in EU accession countries in the run-up to Euro adoption: weathering uncharted waters (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2004/016

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