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Co-movements of non-Euro EU currencies with the Euro

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  • Orlowski, Lucjan T.

Abstract

This paper examines co-movements of non-euro EU Members' currencies and the euro during the 2000–2015 sample period. We propose a model of cross-elasticity of exchange rates and perform the Bai-Perron multiple break points, GARCH and BVAR estimations on the daily data series. The results show high positive cross-elasticity (co-movements) between the euro and the currencies of Denmark, Sweden, Poland, the Czech Republic and Hungary. For the Romanian lei, cross-elasticity with the euro is initially nonexistent but subsequently it is steadily increasing over the sample period. This implies a strong substitution between these currencies and the euro in foreign exchange markets. In contrast, cross-elasticity between the British pound and the euro is considerably lower. For all examined non-euro currencies substitution with the euro increases substantially during the 2008–2010 global financial crisis.

Suggested Citation

  • Orlowski, Lucjan T., 2016. "Co-movements of non-Euro EU currencies with the Euro," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 376-383.
    • Handle: RePEc:eee:reveco:v:45:y:2016:i:c:p:376-383
    DOI: 10.1016/j.iref.2016.07.001
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    Cited by:

    1. Gorman, Michael & Orlowski, Lucjan T. & Roessler, Matthew H., 2020. "Dynamic interactions between Central European currencies and the euro," Economic Systems, Elsevier, vol. 44(3).
    2. Kočenda, Evžen & Moravcová, Michala, 2018. "Intraday effect of news on emerging European forex markets: An event study analysis," Economic Systems, Elsevier, vol. 42(4), pages 597-615.
    3. Al-Shboul, Mohammad & Assaf, Ata & Mokni, Khaled, 2023. "Does economic policy uncertainty drive the dynamic spillover among traditional currencies and cryptocurrencies? The role of the COVID-19 pandemic," Research in International Business and Finance, Elsevier, vol. 64(C).
    4. Wen, Tiange & Wang, Gang-Jin, 2020. "Volatility connectedness in global foreign exchange markets," Journal of Multinational Financial Management, Elsevier, vol. 54(C).
    5. Atenga, Eric Martial Etoundi & Mougoué, Mbodja, 2021. "Return and volatility spillovers to African currencies markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    6. Lucjan T. Orlowski, 2017. "Sensitivity of Interest Rates to Inflation and Exchange Rate in Poland: Implications for Direct Inflation Targeting," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(4), pages 545-560, December.
    7. Orlowski, Lucjan T. & Soper, Carolyne, 2019. "Market risk and market-implied inflation expectations," International Review of Financial Analysis, Elsevier, vol. 66(C).
    8. Orlowski, Lucjan T., 2017. "Volatility of commodity futures prices and market-implied inflation expectations," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 51(C), pages 133-141.

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    More about this item

    Keywords

    Cross-elasticity of change rates; Euro adoption; Euro peg; Inflation targeting;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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