Title

Co-movements of Non-Euro EU Currencies with the Euro

Document Type

Peer-Reviewed Article

Publication Date

9-2016

Abstract

This paper examines co-movements of non-euro EU Members' currencies and the euro during the 2000–2015 sample period. We propose a model of cross-elasticity of exchange rates and perform the Bai-Perron multiple break points, GARCH and BVAR estimations on the daily data series. The results show high positive cross-elasticity (co-movements) between the euro and the currencies of Denmark, Sweden, Poland, the Czech Republic and Hungary. For the Romanian lei, cross-elasticity with the euro is initially nonexistent but subsequently it is steadily increasing over the sample period. This implies a strong substitution between these currencies and the euro in foreign exchange markets. In contrast, cross-elasticity between the British pound and the euro is considerably lower. For all examined non-euro currencies substitution with the euro increases substantially during the 2008–2010 global financial crisis.

DOI

10.1016/j.iref.2016.07.001