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Excess comovements between the Euro/US dollar and British pound/US dollar exchange rates

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  • Kühl, Michael

Abstract

The aim of this paper is to discuss excess comovements for the Euro/US dollar and British pound/US dollar exchange rates, i.e. we look for comovements of exchange rates which are stronger than implied by fundamentals. The results of the empirical analysis give evidence that excess comovements indeed exist. A long-run analysis on correlations can verify that the correlations dynamics of exchange rates, relative inflation rates, long-term interest rates, economic sentiments and money supply are linked. We found that money supply and prices play major roles. From the investigation of our exchange rate pair it becomes obvious that non-fundamental factors in exchange rates have an important meaning for modelling foreign exchange rates. --

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Bibliographic Info

Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 89.

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Date of creation: 2009
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Handle: RePEc:zbw:cegedp:89

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Postal: Platz der Göttinger Sieben 3, 37073 Göttingen
Web page: http://www.cege.wiso.uni-goettingen.de/
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Keywords: Foreign Exchange Market; DCC-GARCH; Excess Comovements;

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