Is the ECU an optimal currency basket?
AbstractRecently the role of the ECU has increased and there has been concern whether it is sustainable. The first part of this paper examines the composition of the ECU and investigates the impact of changes in this composition on the value of the ECU. The results show that when there is little exchange rate variability among the currencies that comprise the ECU or when the changes in composition are small the value of the ECU remains stable. The second part of this paper constructs an alternative, optimal basket of currencies for Germany and compares this basket to the ECU. The path of the optimal basket resembles the ECU path but is dramatically different from the DM/$.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 282.
Date of creation: 1986
Date of revision:
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- Edison, Hali J. & Vardal, Erling, 1987.
"Optimal currency basket in a world of generalized floating : An application to the Nordic countries,"
International Journal of Forecasting,
Elsevier, vol. 3(1), pages 81-96.
- Hali J. Edison & Erling Vardal, 1985. "Optimal currency basket in a world of generalized floating : an application to the nordic countries," International Finance Discussion Papers 266, Board of Governors of the Federal Reserve System (U.S.).
- Hovanov, Nikolai V. & Kolari, James W. & Sokolov, Mikhail V., 2004. "Computing currency invariant indices with an application to minimum variance currency baskets," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1481-1504, June.
- Watanabe, Shingo & Ogura, Masanobu, 2010. "How far apart are the two ACUs from each other? Asian currency unit and Asian currency union," Emerging Markets Review, Elsevier, vol. 11(2), pages 152-172, June.
- Polly Allen, 1993. "Artificial currencies: SDRs and ECUs," Open Economies Review, Springer, vol. 4(1), pages 97-110, March.
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