Umeå Economic Studies, Department of Economics, Umeå University
No 565:
EMU and the Stability and Volatility of Foreign Exchange: Some Empirical Evidence
Mikael Bask ()
and Xavier de Luna ()
Abstract: How has the European monetary integration, with the
creation of the EMU, affected the stability and volatility of foreign
exchange? In order to answer this question, stability and volatility
measures are defined and calculated. We then use these to investigate the
changes in the stability and volatility of 16 European currencies, and in
the volatility of the shocks to these currencies. The stability measures
are based on smooth Lyapunov exponents, while the volatility measures
utilize the variances. The results indicate that when most of the
currencies become more stable, the majority also become less volatile. For
example, following the agreement of the Maastricht Treaty most currencies
became more stable and less volatile, whereas they became less stable and
more volatile when the Danish public voted against the treaty. Finally,
there is no empirical support for the view that a decision to step aside
from a closer monetary collaboration has a negative effect on the stability
of the currency.
Keywords: EMU; Foreign Exchange; Smooth Lyapunov Exponents; Stability; Volatility; (follow links to similar papers)
JEL-Codes: C22; F31; F33; (follow links to similar papers)
56 pages, November 1, 2001
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