Exchange Rate Volatility in a Target Zone : The Czech Experience

This paper analyzes the effects of changes in the Czech exchange rate mechanism on the volatility of the Czech spot exchange rate. While related studies draw the conclusion that exchange rate volatility decreased after the widening of the imposed fluctuation band, the results derived in the present study indicate that these findings might be misleading. Resorting to a refined estimation technique, it becomes apparent that an increase rather than a decline in volatility has taken place after the modifications of the exchange rate system had been implemented