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The determinants of the euro-dollar exchange rate: synthetic fundamentals and a non-existing currency


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  • Clostermann, Jörg
  • Schnatz, Bernd


At the beginning of 1999 the euro was launched as a common currency in 11 European countries. This paper addresses empirically the medium to long-term forces driving the real euro-dollar exchange rate. Constructing a synthetic euro-dollar exchange rate over a period from 1975 to 1998 and applying cointegration approaches, four factors are identified as fundamental determinants of the real euro-dollar exchange rate: the international real interest rate differential, relative prices in the traded and non-traded goods sectors, the real oil price and the relative fiscal position. A single equation error correction model outperforms multivariate models and seems to be best suited to analyse and forecast the behaviour of the euro-dollar exchange rate in the medium-term perspective. If this model is applied to the current developments in foreign exchange markets, the external value of the euro appears to be rather low in the winter of 1999/2000. -- Zum Jahresbeginn 1999 wurde der Euro als gemeinsame Währung in 11 europäischen Staaten eingeführt. In der vorliegenden Studie werden die mittel- bis langfristigen Determinanten des Euro empirisch untersucht. Unter Verwendung eines synthetisch berechneten Euro/Dollar-Wechselkurses werden auf der Basis der Kointegrationsanalyse vier Faktoren als fundamentale Bestimmungsgründe des realen Euro/Dollar Wechselkurses identifiziert: die internationale Realzinsdifferenz, das relative Preisverhältnis gehandelter und nicht-gehandelter Güter, der reale Ölpreis und die relative Staatsausgabenquote. Es zeigt sich, daß ein Eingleichungsfehlerkorrekturansatz zu besseren Ergebnissen führt als ein Vektorfehlerkorrekturmodell und damit am besten geeignet scheint, um das Verhalten des Euro/Dollar-Wechselkurses über die mittlere Frist zu analysieren und zu prognostizieren. Eine Anwendung des Modells auf die derzeitige Wechselkurssituation legt die Vermutung nahe, daß der Außenwert des Euro im Winter 1999/2000 recht niedrig bewertet ist.

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2000,02.

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Date of creation: 2000
Date of revision:
Handle: RePEc:zbw:bubdp1:4138

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Keywords: real exchange rates; fundamentals; cointegration; forecast;

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