FOREIGN EXCHANGE RATES IN CENTRAL EUROPEAN ECONOMIES: NONLINEARITIES IN ADJUSTMENT TO INTEREST RATE DIFFERENTIALS

• Authors: Anna Sznajderska
• Languages of publication: EN

Abstracts

EN

The aim of the paper is to examine the relation between foreign exchange rates and interest rate differentials in Poland, the Czech Republic, and Hungary. The exchange rate equations are inspired by the uncovered interest rate parity (i.e. the UIP condition). The results of empirical studies are usually contrary to the UIP condition. One of the explanations of this puzzle is the existence of certain nonlinearities. The nonlinearities appear because of transaction costs, central bank interventions, limits of speculations, hysteresis, or changes in risk perception. I estimate smooth transition autoregressive models. The threshold variable is an interest rate differential or a level of economic activity. I examine the exchange rates of USD and EUR and 1-, 3- and 6- months and 5- years interest rates. I also test various proxies for risk premium.

Keywords

EN

foreign exchange rates; uncovered interest rate parity; STAR models

• Publisher: Katedra Ekonometrii i Statystyki, Szkoła Główna Gospodarstwa Wiejskiego w Warszawie
• Journal: Metody Ilościowe w Badaniach Ekonomicznych
• Year: 2013
• Volume: 14
• Issue: 2
• Pages: 229-239

Dates

published

2013

Contributors

author

Anna Sznajderska

• National Bank of Poland

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