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

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  • Gottschalk, Jan
  • Döpke, Jörg
  • Kamps, Christophe

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.

Suggested Citation

  • Gottschalk, Jan & Döpke, Jörg & Kamps, Christophe, 2001. "Sources of Euro Real Exchange Rate Fluctuations: What Is Behind the Euro Weakness in 1999-2000?," Kiel Working Papers 1050, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1050
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate; structural vector autoregression; EMU; USA;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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