Dynamic interactions between Central European currencies and the euro |
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| Institution: | 1. Department of Quantitative Methods, University of Economics in Bratislava, Tajovského 13, 041 30 Košice, Slovak Republic;2. Department of Economics, Faculty of Business Economics in Košice, University of Economics in Bratislava, Tajovského 13, 041 30 Košice, Slovak Republic;1. BBVA, Spain;2. University of Castilla La-Mancha, Department of Economic Analysis and Finance, 45071 Toledo, Spain;1. Department of Economics, Technical University of Ostrava, 17. listopadu St. 15/2172, 708 33 Ostrava, Czech Republic;2. Financial Stability Department, Czech National Bank, Na Příkopě 28, 115 03 Prague 1, Czech Republic;1. Lebow College of Business, Drexel University, USA;2. Institute of Business Research, University of Economics, Ho Chi Minh City, Vietnam;3. Graduate School of Economics and Management, Ural Federal University, Russia;4. Business School, University of Western Australia, Australia;5. Departmentof Economics, School of Business and Economics, North South University, Bangladesh;6. Accounting Research Institute, Universiti Teknologi MARA, Malaysia;1. Universidad de Alcalá & EQUALITAS, Departamento de Economía, Facultad de CC. Económicas, Empresariales y Turismo, Universidad de Alcalá, Plaza de la Victoria, 2, 28802 Alcalá de Henares, Madrid, Spain;2. Universidad de Alcalá, Departamento de Economía, Facultad de CC. Económicas, Empresariales y Turismo, Universidad de Alcalá, Plaza de la Victoria, 2, 28802 Alcalá de Henares, Madrid, Spain |
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| Abstract: | We argue that the non-euro EU currencies of Central European countries have moved increasingly together with the euro in foreign exchange markets. To prove this point, we examine the dynamics of cross-elasticity between selected Central European currencies (the Czech koruna, Polish zloty, and Hungarian forint) and the euro exchange rates in U.S. dollar terms using daily data for the January 4, 2000 to April 5, 2019 sample period. We adopt the cross-elasticity model originally proposed and tested for the EU currencies by Orlowski (2016). To test the currency co-movements over time, we employ the Bai-Perron multiple breakpoint regression and two-state Markov switching tests. We find evidence of increasing co-movements between the Central European currencies and the euro that become particularly pronounced in times of financial distress. Co-movements of local exchange rates with the euro are also more pronounced during the euro-periphery sovereign debt crisis. |
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| Keywords: | Cross-elasticity of exchange rates Central European currencies Bai-Perron multiple breakpoint regression Markov switching tests |
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