نوسانات نرخ ارز و تغییر رویه با استفاده از مقایسه Visegrad

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 Economics34 (4) (2006) 727–753.

The volatility of exchange rates under different regimes has been studied extensively in the literature.1 Since the pioneering work of Mussa (1986), conventional wisdom indicates that exchange rate volatility is greater under a flexible regime than that under a fixed arrangement. However, the measurement of volatility has engendered much debate with the approach shifting from the use of standard deviation towards the use of foreign exchange options and conditional heteroskedasticity type models. Exchange rate volatility and its measurement take on new importance in the context of the transition process in the Central and Eastern European (CEE) countries and their integration into the European Union. Since the early years of transition, most of the advanced reformers among CEE countries have developed independent, autonomous monetary policies. Concurrently, they have departed from fixed exchange rates by applying various exit strategies at different times and with different intensity and have moved towards a type of inflation targeting as a policy instrument, as Orlowski (2001) reports.2 In addition, economic integration brought increased international trade openness. Égert and Morales-Zumaquero (2005) document that exchange rate volatility weakens exports with the impact varying across sectors and across CEE countries; Babetskii (2005) shows that a decrease in exchange rate volatility has a positive effect on demand shock convergence. On the institutional level, exchange rate stability is defined as one of the Maastricht criteria for monetary integration.3Orlowski (2003) stresses that candidate countries for the Economic and Monetary Union (EMU) accession must demonstrate their capability to manage inflation and the exchange rate risk premium as a necessary prerequisite for successful monetary convergence. Hence, Orlowski (2004) argues that diminishing exchange rate risk is a key criterion for evaluating currency stability and, thus, the effectiveness of monetary convergence to the euro. In this paper, we analyze exchange rate volatility in the four Visegrad countries, i.e., the Czech Republic, Hungary, Poland, and Slovakia, during the period in which they were abandoning tight regimes in favor of more flexible ones.4 In analyzing exchange rate volatility, we account for path dependency, asymmetric shocks, and movements in interest rates. We find that introduction of floating regimes tends to increase exchange rate volatility, which conforms to conventional wisdom. Moreover, the degree of persistence in exchange rate volatility differs with respect to currency but remains at a similar level under the floating regime. Furthermore, the effect of asymmetric news tends to decrease volatility under the float. Finally, the interest rate influences exchange rate volatility in somewhat non-obvious ways in that, under both regimes, the contemporaneous effect of interest differentials impacts exchange rate volatility but the coefficients measuring the intertemporal effect of interest differentials are insignificant. In our empirical and methodological approaches, we focus on the comparative experiences of the new member states in European integration. The rest of the paper is organized as follows. Section 2 provides an account of exchange rate developments and the arrangements in the Visegrad countries. Section 3 discusses exchange rate volatility and the sources of this volatility that are specific to the process of transition. Section 4 describes the methodology used to measure volatility while Section 5 provides details about the data and changes in exchange rate regime. In Section 6, we present our empirical results. We conclude with comments and policy implications.

We analyze the volatility of exchange rates in the Visegrad countries, namely, the Czech Republic, Hungary, Poland, and Slovakia under two exchange rate regimes. We use an augmented path-dependent threshold GARCH specification to evaluate the dependency of the exchange rate on its volatility and to uncover the impacts of external shocks and interest rates on exchange rate volatility. In addition, we analyze the persistence of volatility and the tendency of the volatility of these currencies to converge towards a steady state. Our results indicate that daily fluctuations of the Czech and Polish currencies depended on the prevailing exchange rate risk under the fixed exchange rate regime. Although the Hungarian currency is affected by its volatility under the floating exchange rate regime, we find no evidence of this effect for Slovakia. These findings imply that exchange rate risk has not been well contained in the past in the tight regime for these three countries but that only the Hungarian currency is affected by such risk under the current flexible regime. In all three cases, volatility contributes to the appreciation of the currency, which is considered less harmful than its impact under conditions of depreciation. Our estimates of conditional volatility indicate that volatility tends to increase after the switch to a more flexible regime. This finding is consistent with the stylized fact that exchange rate volatility is greater under a float than under a fixed regime. In general, our findings indicate that the width of a fluctuation band, either narrow or broad, does not have an unambiguous influence on exchange rate fluctuation. Nonetheless, the type of regime is likely to be the strongest factor affecting exchange rate volatility because of the role played by the interest rate. Furthermore, we find that the impact of external shocks, i.e., news or surprises, on exchange rate volatility differs across countries. Hence, we conclude that volatility has been driven primarily by country-specific effects. The extent to which the volatility was driven by shocks increased after the switch to the float for the Czech and Slovak korunas but it is lower for the Hungarian forint and the Polish zloty in the flexible regime. Hence, the central banks of Poland and Hungary face a more favorable situation because their currencies are better able to contain external shocks, possibly due to more developed financial markets. Regarding the persistence of volatility, we find that it decreased for the former currencies, i.e., the korunas, but increased for the latter ones, i.e., the zloty and the forint. Although a decrease in persistence can be considered a positive sign, the level of persistence is roughly equal for all four currencies under the float so that, on this score, no one of them is in a more favorable position. Finally, we find that the asymmetric effect of past shocks yields mixed results under the tight regime but it has a suppressing impact on the Hungarian and Polish currencies under the float. Two of our findings for these four countries require further explanation. First, we find that the contemporaneous effects of interest rate differentials on exchange rate volatility are small, although clearly present, and they increase under the float for all countries. However, we find no evidence of any effects of changes in interest rate differentials. To explain this latter result, we consider monetary policy and the level of interest rates in the Visegrad countries. During the period of the tight regime, these countries did not conduct independent monetary policy for the most part. After the switch to a flexible regime, monetary policy became more independent in all countries with the interest rate used as its key instrument. In addition, the level of interest rates for the Visegrad countries was relatively high during the tighter regime period. A high interest rate should cause appreciation of the currency, ceteris paribus, although only within the bands of the currency basket and crawling pegs. However, if a high nominal interest rate reflects high expected inflation, Frankel (1993) argues that the currency should lose value in the future. Therefore, if the level of the interest rate, or its differential, reflects an uncertain economic situation and high inflation as it did in these countries, the interest rate differential has an impact as in our findings. Second, we find that convergence of exchange rate volatility to the steady state is somewhat problematic. When the two regimes are compared, the convergence rate is either higher or lower depending on the currency. In general, convergence is relatively slow and about equal for three of the currencies. The exception is the Slovak koruna, whose volatility does not tend to converge to the steady state after the switch to the float. Our findings suggest that policy makers in all four countries should work to contain exchange rate volatility by improving institutions that support better-functioning financial markets and by eliminating the other sources of volatility. Due to the openness of the Visegrad economies and their dependency on foreign trade, the higher exchange rate volatility accompanying the switch to the float may have negative effects on international trade, as documented by Égert and Morales-Zumaquero (2005). Increased exchange rate volatility may also dampen the pass-through from the exchange rate to inflation, which may have a potentially negative impact on the ongoing process of convergence in prices to EU15 levels. Specifically, increased volatility associated with a more flexible exchange rate regime together with the inflation targeting may sever the link between the exchange rate and prices by disconnecting primarily non-tradable goods from the exchange rate, as Coricelli et al. (2006) discuss. Hence, policy makers in the Visegrad countries should set a high priority on containing exchange rate volatility. Finally, by connecting the spikes in volatility to real events, we conclude that volatility is not a completely exogenous process. Budgetary imbalances are the most critical issue for the Visegrad countries because they affect not only exchange rate volatility but also the entire process of conversion to the EMU, as Kočenda et al. (2005) discuss. Uncertainty about fiscal discipline is a common exogenous factor behind exchange rate volatility for these countries. Therefore, central banks should set low inflation targets, work on strengthening credibility, and stabilize nominal interest rates at low levels. A stable interest rate propagates less volatility in the exchange rate and achieving stable low inflation also promotes a less volatile exchange rate, as Orlowski (2004) discusses. However, this policy may risk generating expectations of a nominal exchange rate appreciation, which may paradoxically increase exchange rate volatility. To avoid such an outcome, a consistent framework for monetary policy decisions is required. More importantly, central banks should increase the transparency of their policy decisions and targets by providing more information to markets, as Woodford (2005) argues. By reducing the frequency of unexpected news and surprises with respect to monetary policy, this communication reduces the major factors that drive exchange rate volatility in the Visegrad countries. Therefore, coordination of monetary and fiscal policies would help to reduce exchange rate volatility in these four countries but this is a considerable task for policymakers currently.