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The Monetary Policy of the European Central Bank and the Euro-US Dollar Exchange Rate

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  • Ugo Marani
  • Carlo Altavilla

Abstract

The aim of the research is the evaluation of the exchange rate of the Euro after the first six months of its existence. The main interpretative hypotheses of the research can be summarised in the following points: (i) the evolution of the Euro external value is strictly connected with the agents’ confidence on real, financial and foreign exchange markets; (ii) the ECB monetary policy strategy influenced negatively (or at least neglected) the agents’ confidence and expectations already affected by the negative cyclical conditions of european economy; (iii) the resulting portfolio reallocation determined a short-term capital outflow in favour of US Dollar denominated assets and, hence, an Euro depreciation. The consistency of the whole framework is checked by variables as the Industrial Sentiment, the Interest-Rate Spread, the Implied Volatility of exchange rates, the Risk Reversal, and by the building of a Structural Autoregressive Model.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces9923.

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Date of creation: Mar 1999
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Handle: RePEc:ete:ceswps:ces9923

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Cited by:
  1. Carlo Altavilla, 2003. "Assessing monetary rules performance across EMU countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(2), pages 131-151.
  2. Jorg Bibow, 2002. "The Monetary Policies of the European Central Bank and the Euro's (Mal-)Performance: A stability-oriented assessment," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 31-50.
  3. Jörg Bibow, 2001. "The Monetary Policies of the European Central Bank and the Euro's (Mal)Performance: A Stability-Oriented Assessment," Macroeconomics 0109004, EconWPA.

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