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The Euro Introduction and Non-Euro Currencies

Author

Listed:
  • Dick van Dijk

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Haris Munandar

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Christian M. Hafner

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract

This discussion paper resulted in a publication in 'Applied Financial Economics', 2011, 21, 95-116. This paper documents the existence of large structural breaks in the unconditional correlations among the British pound, Norwegian krone, Swedish krona, Swiss franc, and euro exchange rates (against the US dollar) during the period 1994-2003. Using the framework of dynamic conditional correlation (DCC) models, we find that such breaks occurred both at the time the formal decision to proceed with the euro was made in December 1996 and at the time of the actual introduction of the euro in January 1999. In particular, we document that most correlations were substantially lower during the intermittent period. We also find breaks in unconditional volatilities at the same points in time, but these are of a much smaller magnitude comparatively.

Suggested Citation

  • Dick van Dijk & Haris Munandar & Christian M. Hafner, 2005. "The Euro Introduction and Non-Euro Currencies," Tinbergen Institute Discussion Papers 05-044/4, Tinbergen Institute, revised 08 Jun 2006.
    • Handle: RePEc:tin:wpaper:20050044
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    8. Denise R. Osborn & Christos S. Savva & Len Gill, 2008. "Periodic Dynamic Conditional Correlations between Stock Markets in Europe and the US," Journal of Financial Econometrics, Oxford University Press, vol. 6(3), pages 307-325, Summer.
    9. Kühl, Michael, 2009. "Excess comovements between the Euro/US dollar and British pound/US dollar exchange rates," University of Göttingen Working Papers in Economics 89, University of Goettingen, Department of Economics.
    10. Nicolas Koch, 2014. "Dynamic linkages among carbon, energy and financial markets: a smooth transition approach," Applied Economics, Taylor & Francis Journals, vol. 46(7), pages 715-729, March.
    11. Christos Savva & Denise R Osborn & Len Gill, 2005. "Volatility, spillover Effects and Correlations in US and Major European Markets," Money Macro and Finance (MMF) Research Group Conference 2005 23, Money Macro and Finance Research Group.
    12. Łukasz Goczek & Dagmara Mycielska, 2014. "Monetary policy and nominal convergence in CEE countries with inflation targeting," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 38.
    13. Anne Opschoor & Dick van Dijk & Michel van der Wel, 2013. "Predicting Covariance Matrices with Financial Conditions Indexes," Tinbergen Institute Discussion Papers 13-113/III, Tinbergen Institute.
    14. Kleinbrod, Vincent M. & Li, Xiao-Ming, 2017. "Order flow and exchange rate comovement," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 199-215.
    15. Savva, Christos S., 2009. "International stock markets interactions and conditional correlations," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(4), pages 645-661, October.
    16. Lean, Hooi Hooi & Teng, Kee Tuan, 2013. "Integration of world leaders and emerging powers into the Malaysian stock market: A DCC-MGARCH approach," Economic Modelling, Elsevier, vol. 32(C), pages 333-342.
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    18. Łukasz Goczek & Dagmara Mycielska, 2019. "Actual monetary policy independence in a small open economy: the Polish perspective," Empirical Economics, Springer, vol. 56(2), pages 499-522, February.
    19. D'Adamo, Gaetano, 2010. "Estimating Central Bank preferences in a small open economy: Sweden 1995-2009," MPRA Paper 26575, University Library of Munich, Germany.
    20. Nektarios Aslanidis & Christos S. Savva, 2011. "Are There Still Portfolio Diversification Benefits In Eastern Europe? Aggregate Versus Sectoral Stock Market Data," Manchester School, University of Manchester, vol. 79(6), pages 1323-1352, December.
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    More about this item

    Keywords

    Exchange rates; multivariate GARCH; dynamic conditional correlation; structural breaks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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