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The Credibility of Cabo Verde's Currency Peg

2006; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.928572

1556-5068

Jorge Braga de Macedo, Luís Brites Pereira,

Market Dynamics and Volatility

This paper studies the credibility of the currency peg of Cape Verde (CV) by assessing the impact of economic fundamentals, our explanatory variables, on the stochastic properties of Exchange Market Pressure (EMP), the dependent variable, using EGARCH-M models. Our EMP descriptive analysis finds a substantial reduction in the number of crisis episodes and of (unconditional) volatility after the peg's adoption. Moreover, our estimation results suggest that mean EMP is driven by fundamentals and that conditional variability is more sensitive to negative shocks.