Czech Koruna and Polish Zloty: Spot and Currency Option Volatility Patterns
IMF Working Papers, August 1, 2001
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- Czech Koruna and Polish Zloty: Spot and Currency Option Volatility Patterns
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Bibliographic details
- Authors: Armando Méndez Morales
- Published: August 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451854275.001
Summary / Main findings
- Exchange rate flexibility has facilitated an impressively fast insertion of the Czech koruna and the Polish zloty into the global currency market.
- Spot exchange rate volatility patterns differ between the two currencies:
- Lower volatility is observed for the koruna against the euro relative to the U.S. dollar.
- The opposite is true for the zloty (higher volatility against the euro relative to the U.S. dollar).
- Apparent drivers of these differences:
- Earlier financial integration of the Czech Republic with Europe is linked to the koruna’s lower volatility against the euro.
- Early dollarization in Poland, as a result of initial higher inflation rates, is linked to the zloty’s relative behavior.
- Currency options market findings:
- The currency options market shows enhanced information content of both currencies against the euro.
- This enhanced information content is reflected in the behavior of their implied volatility.
Policy-relevant implications (implicit in findings)
- Monitoring the evolution of financial integration and inflation history is important to understand exchange rate volatility dynamics for transition economies.
- Currency options and implied volatility provide additional market-based signals about exchange rate risk and investor expectations, particularly versus the euro.
Subjects and keywords
- Subjects: Currencies, Currency markets, Exchange rate policy, Exchange rates, Financial institutions, Financial markets, Foreign exchange, Money, Options
- Keywords: break, Currencies, Currency markets, currency option, Eastern Europe, exchange rate, Exchange rate policy, Exchange rates, financial market, option market, option volatility, options, Polish zloty, U.S. dollar, volatility, WP, zloty
Additional note
- Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Source: "Czech Koruna and Polish Zloty: Spot and Currency Option Volatility Patterns", Armando Méndez Morales, IMF Working Papers 2001, 120 (2001), August 1, 2001.
Content in this bundle
- Czech Koruna and Polish Zloty: Spot and Currency Option Volatility Patterns - WP/01/120