Fundamentals and Technical Trading: Behavior of Exchange Rates in the CEECs
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- Bask, M. & Fidrmuc, J. Open Econ Rev (2009) 20: 589. doi:10.1007/s11079-008-9095-3
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We incorporate technical trading into the monetary approach to exchange rates, and estimate the model for four Central and Eastern European countries that introduced the policy of free floating in the late 1990s; the Czech Republic, Hungary, Poland and Slovakia. We find that past exchange rates contribute significantly to the determination of the spot exchange rate. We also find a feedback behavior driving the exchange rate to its fundamental value although the mean reversion parameter is small. Overall, this means that these currency markets have developed a complex structure of different trader types, which already is documented for developed countries.