Tracking the Euro's Progress
AbstractThe evolution of the euro since its inception has appeared inexplicable. This paper develops a monetary model of the euro/US dollar exchange rate to track the progress of the currency, both before and after Stage 3 EMU. The relationship between the exchange rate, money stocks, GDP, interest and inflation rates, and prices is identified. The observed patterns of behaviour during the 1990s are used to predict the euro's value up to mid-2000; a consistent finding is that the euro is over-predicted by 23-30%. This finding is robust to the use of alternative sample periods and alternative estimation methodologies, as long as each of the variables is treated as endogenous. This monetary model does not give much weight to factors such as productivity. However, the past evolution of European exchange rates suggests that productivity trends are indeed important. Some estimates suggest that an annual one percentage point in the intercountry differential in tradable-nontradable productivity causes a 0.85-1.7% real appreciation of a currency. Since recent sectoral productivity data are unavailable, we rely upon potential GDP measures to assess likely trends in the euro. We conclude that without an upward shift in Euroland potential growth, the euro will tend to depreciate over time. Copyright 2000 by Blackwell Publishers Ltd.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal International Finance.
Volume (Year): 3 (2000)
Issue (Month): 3 (November)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Bernd Schnatz, 2007.
"Is reversion to PPP in euro exchange rates non-linear?,"
International Economics and Economic Policy,
Springer, vol. 4(3), pages 281-297, November.
- Schnatz, Bernd, 2006. "Is reversion to PPP in euro exchange rates non-linear?," Working Paper Series 0682, European Central Bank.
- Giancarlo Corsetti & John Flemming & Seppo Honkapohja & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2002.
"The Weakness of the Euro: Is it Really a Mystery?,"
EEAG Report on the European Economy,
CESifo Group Munich, vol. 0, pages 27-42, 04.
- Giancarlo Corsetti & John Flemming & Seppo Honkapohja & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2002. "The Weakness of the Euro: Is it Really a Mystery?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 2002(CESIFOFOR), pages 27-42, 04.
- Heng Chen & Dietrich K. Fausten & Wing-Keung Wong, 2006. "Evolution Of Dollar/Euro Exchange Rate Before And After The Birth Of Euro And Policy Implications," Monash Economics Working Papers 14/06, Monash University, Department of Economics.
- Jean-François Goux, 2008. "Ruptures épaisses et stationnarité en tendance : le cas du taux de change euro-dollar," Post-Print halshs-00333576, HAL.
- Nautz, Dieter & Offermanns, Christian J., 2006. "Does the Euro follow the German Mark? Evidence from the monetary model of the exchange rate," European Economic Review, Elsevier, vol. 50(5), pages 1279-1295, July.
- Gabriele Galati & Corrinne Ho, 2003.
"Macroeconomic News and the Euro/Dollar Exchange Rate,"
Banca Monte dei Paschi di Siena SpA, vol. 32(3), pages 371-398, November.
- Gabriele Galati & Corrinne Ho, 2001. "Macroeconomic news and the euro/dollar exchange rate," BIS Working Papers 105, Bank for International Settlements.
- Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2008. "Chapter 2: How much real dollar depreciation is needed to correct global imbalances?," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 61-70, 02.
- Michael Frenkel & Isabell Koske, 2004. "How well can monetary factors explain the exchange rate of the euro?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 32(3), pages 233-244, September.
- Philip Arestis & Andrew Brown & Kostas Mouratidis & Malcolm Sawyer, 2002. "The Euro: Reflections on the first three years," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 1-17.
- Ron Alquist & Menzie D. Chinn, 2002. "Productivity and the Euro-Dollar Exchange Rate Puzzle," NBER Working Papers 8824, National Bureau of Economic Research, Inc.
- Menzie D. Chinn & Ron Alquist, 2006.
"Conventional and Unconventional Approaches to Exchange Rate Modeling and Assessment,"
NBER Working Papers
12481, National Bureau of Economic Research, Inc.
- Ron Alquist & Menzie D. Chinn, 2008. "Conventional and unconventional approaches to exchange rate modelling and assessment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 2-13.
- Pompeo Della Posta, 2005. "Fundamentals, International Role of Euro and 'Framing' of Expectations: What are the Determinants of the Dollar/Euro Exchange Rate?," Working Papers de Economia (Economics Working Papers) 24, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
- Helmut Frisch, 2003. "The euro and its consequences: What makes a currency strong?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 31(1), pages 15-31, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.