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ISSN: 2306-3483 (Online), 2071-8330 (Print)



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Simulation of the Czech koruna’s participation in ERM II – alternative approaches

Vol. 10, No 2, 2017

 

Mojmír Helísek

 

University of Finance and Administration, Prague
Czech Republic
Email: mojmir.helisek@vsfs.cz

 

 

Simulation of the Czech koruna’s participation in ERM II – alternative approaches

 

Roman Mentlík

 

University of Finance and Administration, Prague
Czech Republic
Email: RMentlik@seznam.cz

 

 

 

 

 

 

Abstract. The fulfillment of the exchange rate stability criterion requires at least a two-year participation of the given currency in ERM II “without severe tensions”. The Czech koruna does not participate in ERM II, inter alia because of risks which are connected with fixed exchange rate. The aim of this paper is to find out how to simulate such participation. At the beginning of the paper, current methods of assessment of the criterion fulfillment by the Czech authorities, European authorities and other authors are analyzed. We conclude that these approaches are inappropriate. We offer our two own assessments which are different and reflect the change in the exchange rate regime since November 2013 (when massive interventions on the foreign exchange market took place). First, to evaluate only the period prior those interventions. Second, to determine the trend of the exchange rate development in 2010-2013 (i.e. the period from the reassuring of the sharp fluctuations of the exchange rate CZK/EUR to the start of interventions) and extrapolate it into present time. In both cases, we come to the same conclusion: the convergence criterion was fulfilled.

 

Received: December, 2016

1st Revision: January, 2017

Accepted: February, 2017

 

DOI: 10.14254/2071-8330.2017/10-2/2

 

JEL Classification:F31, F33, F36

Keywords: ERM II, convergence criteria, euro area enlargement, Czech koruna