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Open Economies Review

, Volume 14, Issue 3, pp 251–267 | Cite as

Monetary Convergence and Risk Premiums in the EU Accession Countries

  • Lucjan T. Orlowski
Article

Abstract

This study examines the impact of various monetary policy regimes on the ability to lower inflation and exchange rate risk premiums in the EU accession countries as they undergo monetary convergence to the eurozone. It proposes a monetary policy framework of flexible targeting of relative inflation risk premium that is believed to be credible and useful for managing these two categories of risk. A model of inflation and exchange rate risk premiums within the context of inflation targeting is developed. Recent trends in these risk premiums in Hungary, the Czech Republic and Poland are tested by employing the threshold ARCH (TARCH) model.

inflation risk premium exchange rate risk premium inflation targeting monetary convergence transition economies 

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Copyright information

© Kluwer Academic Publishers 2003

Authors and Affiliations

  • Lucjan T. Orlowski
    • 1
  1. 1.Department of Economics and FinanceSacred Heart UniversityFairfieldUSA

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