N.P.A. van Giersbergen
- The effect of European integration on exchange rate dependence: the Polish accession to the EU
- Number of pages
- Amsterdam: Amsterdam School of Economics, Department of Quantitative Economics
- UvA-Econometrics discussion paper
- Volume | Edition (Serie)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
This paper investigates the effect of the Polish accession to the European Union (EU) on the dependence between the euro-US dollar and Polish zloty-US dollar exchange rate. The dependence is estimated by means of copulas as suggested by Patton (2006). This approach allows to first specify and estimate the marginal models and subsequently estimate the dependence structure between these marginal models using a copula function. Two copulas are considered: the normal and the symmetrical Joe-Clayton (SJC) copula. In addition, two specifications of the copula parameters are estimated: a constant and dynamic specification. We find that the correlation between the exchange rates has increased significantly since Poland joined the EU. Furthermore, the variability of the correlation turns out to be much smaller after than before Poland joined the EU. Both findings suggest that the economic integration between Poland and the rest of the EU has increased. All copulas are tested for misspecification, although only the SJC copula with dynamic parameters seems to be correctly specified. A structural break due to accession of Poland was modeled through a traditional 0-1 step dummy and a logistic dummy. However, in none of the copula specifications considered in the paper, the smooth logistic dummy leads to significantly different results than the abrupt 0-1 dummy.
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