Exchange Rate Variability, Pressures and Optimum Currency Area Criteria: Implications for the Central and Eastern European Countries

This paper estimates the medium-term determinants of the bilateral exchange rate variability and exchange rate pressures for 20 developed countries in the 1990s. The results suggest that optimum currency area criteria explain the dynamics of bilateral exchange rate variability and pressures, to a large extent. Next, we predict exchange rate volatility and pressures for the Central and Eastern European Countries (CEECs). We find that CEECs encounter exchange rate pressures approximately at the level of Euro area countries before their euro adoption.