Beware of breaks in exchange rates: Evidence from European transition countries |
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| Institution: | 1. Center for Economic Research and Graduate Education (CERGE), Charles University, P.O. Box 882, Politických vězň? 7, 111 21 Prague, Czech Republic;2. William Davidson Institute at the University of Michigan Business School, CEPR, London;1. Università di Torino, Departimento di Economia “Cognetti de Martiis”, Lungo Dora Siena 100A, 10153 Turin, Italy;2. Collegio Carlo Alberto, BRICK, via Real Collegio 30, 10024 Moncalieri, Turin, Italy;1. Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou 510275, PR China;2. College of Management and Economics, Tianjin University, Tianjin 300072, PR China;3. China Center for Social Computing and Analytics, Tianjin University, Tianjin 300072, PR China;4. UTS Business School, University of Technology, Sydney, PO Box 123, Broadway, Ultimo 2007, NSW, Australia;1. Asian Growth Research Institute and Osaka University, 11–4 Otemachi, Kokura-kita, Kitakyushu, Fukuoka, 803–0814, Japan;2. Faculty of Economics, Keio University, 2–15–45 Mita, Minato-ku, Tokyo, 108–8345, Japan |
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| Abstract: | We endogenously search for the single most decisive structural break in exchange rate for a group of European transition countries under the hypothesis that structural breaks in exchange rates are driven by exchange rate policies. Detected breaks were frequently associated with major changes in exchange rate regime. However, several breaks were found not to be driven by exchange rate policies. By this token, the lack of coincidence between policy step and exchange rate regime shift hints at imperfect timing of exchange regime modification. Further, since a one time break can lead to inconsistent results, structural breaks in exchange rates should be accounted for in empirical research. |
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