DOCUMENTOS DE ECONOMÍA Y FINANZAS INTERNACIONALES Working Papers on International Economics and Finance DEFI 15-08 May 2015 Detection of Implicit Fluctuation Bands and their Credibility in Candidate Countries Simón Sosvilla-Rivero María del Carmen Ramos Herrera Asociación Española de Economía y Finanzas Internacionales www.aeefi.com ISSN: 1696-6376 Detection of Implicit Fluctuation Bands and their Credibility in Candidate Countries SIMÓN SOSVILLA-RIVERO Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales Campus de Somosaguas, 28223, Madrid, Spain. MARÍA DEL CARMEN RAMOS-HERRERA Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales Campus de Somosaguas, 28223, Madrid, Spain. e-mail:
[email protected] Abstract: This paper attempts to identify implicit exchange rate regimes for currencies of candidate countries vis-à-vis the euro. To that end, we apply three sequential procedures that consider the dynamics of exchange rates to data covering the period from 1999:01 to 2012:12. Our results would suggest that implicit bands have existed in many sub-periods for almost all currencies under study. Once we detect de facto discrepancies between de facto and de iure exchange rate regimes, we make use of different methods to study the credibility of the detected fluctuation bands. The detected lack of credibility in a high percentage of the sample is robust using the Drift Adjustment method and discrete choice models, suggesting that economic agents do not behave as if these bands actually were in force at time of making their financial plans. These countries do not improve the confidence on the fluctuation bands as time evolves.