This paper documents the existence of large structural breaks in the unconditional correlations among the British pound, Norwegian krone, Swedish krona, Swiss franc, and euro exchange rates (against the US dollar) during the period 1994-2003. Using the framework of dynamic conditional correlation (DCC) models, we find that such breaks occurred both at the time the formal decision to proceed with the euro was made in December 1996 and at the time of the actual introduction of the euro in January 1999. In particular, we document that most correlations were substantially lower during the intermittent period. We also find breaks in unconditional volatilities at the same points in time, but these are of a much smaller magnitude comparatively.

dynamic conditional correlation, exchange rates, multivariate GARCH, structural breaks
Time-Series Models; Dynamic Quantile Regressions (jel C32), Foreign Exchange (jel F31), Financial Aspects of Economic Integration (jel F36), International Financial Markets (jel G15)
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

van Dijk, D.J.C, Munandar, M.I.S.H, & Hafner, C.M. (2005). The Euro Introduction and Non-Euro Currencies (No. TI 05-044/4). Tinbergen Institute Discussion Paper Series. Retrieved from