Sources of Euro Real Exchange Rate Fluctuations: What Is Behind the Euro Weakness in 1999-2000?

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Sources of Euro Real Exchange Rate Fluctuations: What Is Behind the Euro Weakness in 1999-2000?

Author Info

Jörg Döpke
Jan Gottschalk
Christophe Kamps

Additional information is available for the following registered author(s):

Christophe Kamps

Abstract

This paper analyzes the factors underlying the weakness of the euro. For this purpose, the framework advocated by Clarida and Gali (1994) is used. Within this model, three structural shocks drive the dynamics of the endogenous variables: aggregate supply shocks, aggregate spending shocks, and monetary shocks. Applying a structural VAR to data for the eurozone and the U.S. suggests that supply shocks are the most important factor explaining real exchange rate fluctuations in the sample from 1980 to 2000. However, historical decompositions reveal that fluctuations since the introduction of the euro in 1999 have been predominantly driven by demand shocks.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1050.

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Length: 33 pages
Date of creation: May 2001
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Handle: RePEc:kie:kieliw:1050

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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