Beware of breaks in exchange rates: Evidence from European transition countries

We endogenously search for the single most decisive structural break in exchange rate for a group of European transition countries under the hypothesis that structural breaks in exchange rates are driven by exchange rate policies. Detected breaks were frequently associated with major changes in exchange rate regime. However, several breaks were found not to be driven by exchange rate policies. By this token, the lack of coincidence between policy step and exchange rate regime shift hints at imperfect timing of exchange regime modification. Further, since a one time break can lead to inconsistent results, structural breaks in exchange rates should be accounted for in empirical research.