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Volume 60, Issue 1


Volatility Regimes in Central and Eastern European Countries’ Exchange Rates

Frömmel, Michael

Year: 2010   Volume: 60   Issue: 1   Pages: 2-21

Abstract: We investigate changes between volatility regimes in five Central and Eastern European countries to analyze whether these changes are consistent with changes in the official exchange rate arrangements. The analysis merges two approaches, the GARCH model (Bollerslev, 1986) and the Markov switching model (Hamilton, 1989). We discover switches between high- and low-volatility regimes consistent with policy settings for Hungary, Poland, and, to a lesser extent, the Czech Republic, whereas Romania and Slovakia do not show a clear picture. Furthermore, we check the robustness of the model regarding the choice of the error distribution and find that heavy-tailed conditional distributions substantially improve the results.

JEL classification: E42, F31, F36

Keywords: CEEC, exchange rate volatility, regime switching GARCH, Markov switching model, transition economies


RePEc: http://ideas.repec.org/a/fau/fauart/v60y2010i1p2-21.html

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