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How Credible Are the Exchange Rate Regimes of the New EU Countries? : Empirical Evidence from Market Sentiment

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  • CHRISTIAN BAUER
  • BERNHARD HERZ

Abstract

European Union (EU) accession countries have strong incentives to stabilize their exchange rates with respect to the euro as the nominal anchor. We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize the de facto exchange rate regimes and derive a market-based measure of the credibility of these exchange rate regimes. Our empirical results indicate that in the run-up to EU accession, most Central and Eastern European countries enjoyed high credibility in their exchange rate management. However, some of these future Economic and Monetary Union participants will have to strengthen their efforts and further focus their exchange rate policy on stabilizing the euro exchange rate.

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  • Christian Bauer & Bernhard Herz, 2005. "How Credible Are the Exchange Rate Regimes of the New EU Countries? : Empirical Evidence from Market Sentiment," Eastern European Economics, Taylor & Francis Journals, vol. 43(3), pages 55-77, May.
    • Handle: RePEc:mes:eaeuec:v:43:y:2005:i:3:p:55-77
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    Cited by:

    1. Dejan Živkov & Jovan Njegić & Mirela Momčilović & Ivan Milenković, 2016. "Exchange Rate Volatility and Uncovered Interest Rate Parity in the European Emerging Economies," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(3), pages 253-270.
    2. Bauer, Christian & Herz, Bernhard, 2007. "Credibility of CIS exchange rate policies -- A technical trader's view," Emerging Markets Review, Elsevier, vol. 8(1), pages 50-66, March.
    3. Bauer, Christian & De Grauwe, Paul & Reitz, Stefan, 2009. "Exchange rate dynamics in a target zone--A heterogeneous expectations approach," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 329-344, February.
    4. Bauer, Christian & Herz, Bernhard, 2009. "Monetary and exchange rate stability in South and East Asia," Pacific-Basin Finance Journal, Elsevier, vol. 17(3), pages 352-371, June.
    5. Daniel Stavárek, 2006. "Assessment Of The Exchange Rate Volatility In New Eu Member States And Romania1," Revista Tinerilor Economisti (The Young Economists Journal), University of Craiova, Faculty of Economics and Business Administration, vol. 1(6), pages 20-29, April.
    6. Beirne, John & Bijsterbosch, Martin, 2011. "Exchange rate pass-through in central and eastern European EU Member States," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 241-254, March.
    7. Stavarek, Daniel, 2006. "Ability of the New EU Member States to Fulfill the Exchange Rate Stability Convergence Criterion," MPRA Paper 1202, University Library of Munich, Germany.

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