Seasonalities in Eastern Foreign Exchange Markets: A Barrier to Euro Adoption?

Abstract

Plans for an early adoption of the euro by some new EU members hang on political will and a set of nominal criteria. The focus, however, should be on the available adjustment mechanisms supporting a permanently fixed exchange rate. Efficient financial markets could provide stabilisation (following a shock), substituting the weakened array of traditional policy instruments. In order to assess the availability of such alternative, this paper presents a particular empirical analysis of efficiency in the foreign exchange markets of three recently acceded countries. The results suggest that some caution is needed in the transition towards full monetary integration, as the level of financial efficiency already attained may be insufficient to ensure an adequate source of stabilisation in economies affected by specific disturbances.