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Tracking the Euro

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Author Info

  • Vincent Koen
  • Laurence Boone
  • Alain de Serres
  • Nicola Fuchs

Abstract

During the first two years of monetary union, the euro's weakness surprised most market participants. Explanations proliferated ranging from fundamentals such as differences in growth prospects to psychological factors such as herd behaviour, but no single story fully accounts for the observed exchange rate path. Based on an eclectic approach, this paper offers an empirical analysis showing that terms-of-trade and saving/investment behaviour seem to have driven the euro exchange rate over the medium and longer run. While such econometric estimates ought to be interpreted with due care, they do support the view that towards the end of 2000, the euro was significantly undervalued ... Pendant les deux premières années de l'union monétaire, la faiblesse de l'euro a surpris la plupart des participants aux marchés. Les explications se sont multipliées allant de fondamentaux tels que les différentiels de croissance anticipés aux facteurs psychologiques tels que les comportements grégaires, mais aucune d'entre elles ne rend compte pleinement à elle seule de la trajectoire du taux de change. Partant d'une approche éclectique, ce papier propose une analyse empirique montrant que les termes de l'échange et les comportements d'épargne/investissement ont apparemment sous-tendu l'évolution du taux de change à moyen et plus long terme. Même si des estimations de ce type doivent être interprétées avec précaution, elles confortent le sentiment que vers la fin de l'année 2000 l'euro était significativement sousévalué ...

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File URL: http://dx.doi.org/10.1787/536702025320
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 298.

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Date of creation: 11 Jun 2001
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Handle: RePEc:oec:ecoaaa:298-en

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Related research

Keywords: exchange rates; overshooting; euro; eurosystem; ECB; intervention; capital flows; intervention; BCE; flux de capitaux; taux de change; Euro; surajustement; Eurosystème;

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Cited by:
  1. Didier Borowski & Cecile Couharde, 2003. "The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound Sterling," Open Economies Review, Springer, Springer, vol. 14(2), pages 169-190, April.
  2. Siregar, Reza, 2011. "The Concepts of Equilibrium Exchange Rate: A Survey of Literature," MPRA Paper 28987, University Library of Munich, Germany.
  3. Gadea, Maria-Dolores & Montanes, Antonio & Reyes, Marcelo, 2004. "The European Union currencies and the US dollar: from post-Bretton-Woods to the Euro," Journal of International Money and Finance, Elsevier, Elsevier, vol. 23(7-8), pages 1109-1136.
  4. Mtonga, Elvis, 2006. "The real exchange rate of the rand and competitiveness of South Africa's trade," MPRA Paper 1192, University Library of Munich, Germany.
  5. Guy Meredith, 2001. "Why Has the Euro Been so Weak?," IMF Working Papers, International Monetary Fund 01/155, International Monetary Fund.
  6. Bas van Aarle & Harry Garretsen & Florence Huart, 2003. "Transatlantic Monetary and Fiscal Policy Interaction," CESifo Working Paper Series 1042, CESifo Group Munich.
  7. 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, Ifo Institute for Economic Research at the University of Munich, vol. 2002(CESIFOFOR), pages 27-42, 04.
  8. Heimonen, Kari, 2009. "The euro-dollar exchange rate and equity flows," Review of Financial Economics, Elsevier, Elsevier, vol. 18(4), pages 202-209, October.
  9. Gabriele Galati & Corrinne Ho, 2003. "Macroeconomic News and the Euro/Dollar Exchange Rate," Economic Notes, Banca Monte dei Paschi di Siena SpA, Banca Monte dei Paschi di Siena SpA, vol. 32(3), pages 371-398, November.
  10. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers, Bank of England 248, Bank of England.
  11. Mike Artis, 2002. "The Performance of the European Central Bank," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1), pages 19-29.
  12. Nilsson, Kristian, 2002. "Do Fundamentals Explain the Behavior of the Real Effective Exchange Rate?," Working Paper, National Institute of Economic Research 78, National Institute of Economic Research.
  13. Domenico Sartore & Marcello Esposito, 2002. "Guest Editorial," The European Journal of Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(4), pages 346-351.
  14. Ron Alquist & Menzie D. Chinn, 2002. "Productivity and the Euro-Dollar Exchange Rate Puzzle," NBER Working Papers 8824, National Bureau of Economic Research, Inc.
  15. Renato Filosa, 2003. "Shock monetari e reali, ciclo economico e valore dell' euro," Moneta e Credito, Economia civile, Economia civile, vol. 56(223), pages 295-324.

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