Exchange rate volatility and regime change: A Visegrad comparison |
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| Authors: | Ev en Ko
enda,Juraj Valachy |
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| Affiliation: | aCERGE-EI (a joint workplace of Charles University and the Academy of Sciences of the Czech Republic), P.O. Box 882, Politických vězňů 7, 111 21 Prague, Czech Republic;bWDI at University of Michigan Business School, USA;cCEPR, London, UK;dFaculty of Social and Economic Sciences, Comenius University, Odbojárov 10/A, P.O. Box 129, 820 05 Bratislava 25, Slovak Republic |
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| Abstract: | We analyze exchange rate volatility in the Visegrad Four countries during the period in which they abandoned tight regimes for more flexible ones. We account for path dependency, asymmetric shocks, and movements in interest rates. In addition, we allow for a generalized error distribution. The overall findings are that path-dependent volatility has a limited effect on exchange rate developments and that the introduction of floating regimes tends to increase exchange rate volatility. During the period of flexible regimes, volatility was mainly driven by surprises. Asymmetric effects of news tend to decrease volatility under the floating regime. Interest differentials impact exchange rate volatility contemporaneously under either regime, although we find no intertemporal effect of interest differentials. Journal of Comparative Economics 34 (4) (2006) 727–753. |
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| Keywords: | Exchange rates Exchange rate regimes Volatility Transition Integration European Union Nonlinearity Interest rate parity |
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