Title: The Markov-switching drivers of foreign exchange rate comovements in the case of CEE countries

Authors: Mercédesz Mészáros; Dóra Sallai; Gábor Dávid Kiss

Addresses: Faculty of Economics and Business Administration, University of Szeged, 6722 Szeged, Kálvária sgt. 1., Hungary ' Faculty of Economics and Business Administration, University of Szeged, 6722 Szeged, Kálvária sgt. 1., Hungary ' Faculty of Economics and Business Administration, University of Szeged, 6722 Szeged, Kálvária sgt. 1., Hungary

Abstract: Significant foreign exchange market turbulences have emerged in recent years, which makes it worthwhile to monitor the co-movements of the exchange rates which are influenced by the variables of macroeconomic and financial environment. Regarding the effects of market contagion after exogenous shocks, it is also essential to capture the less examined elements linked to this like the measures of unconventional monetary policy. Fitting a Dynamic Conditional Correlation and Markov-Switching models to the sample of the Czech, Hungarian and Polish foreign exchange markets we analysed whether their currencies moved together with their euro area benchmarks between 2007 and 2020. Our results showed the heterogeneity of the regional currencies. In addition, the research finding is that regime-changes revealed more similarities in case of the Polish and Hungarian currencies than what we were able to identify in the case of CZK.

Keywords: contagion; co-movements; CEE; foreign exchange markets; unconventional monetary policy; Markov-switching; Visegrad-countries.

DOI: 10.1504/IJMEF.2024.144125

International Journal of Monetary Economics and Finance, 2024 Vol.17 No.5, pp.393 - 412

Received: 30 Aug 2021
Accepted: 21 Sep 2022
Published online: 28 Jan 2025 *

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