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The dollar–euro exchange rate and monetary fundamentals

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  • Joscha Beckmann

    (University of Bochum)

  • Dionysius Glycopantis

    (City University London)

  • Keith Pilbeam

    (City University London)

Abstract

This study analyzes the relationship between the dollar–euro exchange rate and macroeconomic fundamentals according to the monetary model after 1999. Multivariate and time-varying univariate cointegration techniques are used to test for a long-run equilibrium and changes in the underlying coefficients. Our results provide clear evidence of a long-run relationship between exchange rates and fundamentals. However, we find significant changes in the economic impact of fundamentals on the dollar–euro exchange rate. Both long-run and the short-run coefficients are shown to be strongly time-varying and significantly affected by the financial crisis and the emergence of unconventional monetary policy.

Suggested Citation

  • Joscha Beckmann & Dionysius Glycopantis & Keith Pilbeam, 2018. "The dollar–euro exchange rate and monetary fundamentals," Empirical Economics, Springer, vol. 54(4), pages 1389-1410, June.
    • Handle: RePEc:spr:empeco:v:54:y:2018:i:4:d:10.1007_s00181-017-1335-1
    DOI: 10.1007/s00181-017-1335-1
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    More about this item

    Keywords

    Cointegration; Euro–dollar exchange rate; Time-varying coefficient approach;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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