The empirical determinants of the Euro: Short and long run perspectives
AbstractThe behavior of the dollar/euro exchange rate is modeled using a monetary model of the exchange rate. The econometric analysis is complicated by the short sample span of actual euro data available for analysis. Hence, data on a synthetic euro are used. The assumptions underlying the monetary approach are discussed. A cointegrating relationship involving the exchange rate, money stocks, industrial production, interest and inflation rates, augmented by a relative price of nontradables, is identified for the 1991M08-1999M12 period using the Johansen procedure. The model implies that the euro was undervalued by about 13-15% in January 2000. This finding is robust to the use of alternative sample periods, and alternative estimation methodologies such as single-equation error correction and first differences specifications. A longer term perspective is provided by a productivity-based model of the real value of the euro. Some panel regression estimates of the relationship between intercountry relative productivity differentials and real exchange rates is presented. Using these estimates to conduct some calculations, one comes to the conclusion that unless drastic changes to productivity trends occur, there is little reason to believe that the real value of the euro will deviate from its current zero-drift path. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2000,43.
Date of creation: 2000
Date of revision:
euro; exchange rate; monetary model; productivity;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alan C. Stockman, 1978.
"A Theory of Exchange Rate Determination,"
UCLA Economics Working Papers, UCLA Department of Economics
122, UCLA Department of Economics.
- Stockman, Alan C, 1980. "A Theory of Exchange Rate Determination," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(4), pages 673-98, August.
- Alan C. Stockman, 1978. "A Theory of Exchange Rate Determination," UCLA Economics Working Papers, UCLA Department of Economics 113, UCLA Department of Economics.
- Kenneth A. Froot & Kenneth Rogoff, 1991.
"The EMS, the EMU, and the Transition to a Common Currency,"
NBER Working Papers
3684, National Bureau of Economic Research, Inc.
- Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 269-328 National Bureau of Economic Research, Inc.
- Kenneth Froot & Kenneth Rogoff & Olivier Blanchard & Stanley Fischer, . "The EMS, the EMU, and the Transition to a Common Currency," Working Paper 32216, Harvard University OpenScholar.
- Gunter Coenen & Juan Luis Vega, 2000.
"The Demand for M3 in the Euro Area,"
Econometric Society World Congress 2000 Contributed Papers, Econometric Society
0976, Econometric Society.
- G. Coenen & J.-L. Vega, 2001. "The demand for M3 in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(6), pages 727-748.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
- Jonathan Coppel & Martine Durand & Ignazio Visco, 2000. "EMU, The Euro and The European Policy Mix," OECD Economics Department Working Papers 232, OECD Publishing.
- Horvath, Michael T.K. & Watson, Mark W., 1995. "Testing for Cointegration When Some of the Cointegrating Vectors are Prespecified," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(05), pages 984-1014, October.
- Rogoff, Kenneth, 1999. "Monetary Models of Dollar/Yen/Euro Nominal Exchange Rates: Dead or Undead?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(459), pages F655-59, November.
- Demertzis, Maria & Hughes Hallett, Andrew, 1999. "EMU and the External Value of the Euro," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2058, C.E.P.R. Discussion Papers.
- McCallum, Bennett T., 1994.
"A reconsideration of the uncovered interest parity relationship,"
Journal of Monetary Economics, Elsevier,
Elsevier, vol. 33(1), pages 105-132, February.
- Bennett T. McCallum, 1992. "A Reconsideration of the Uncovered Interest Parity Relationship," NBER Working Papers 4113, National Bureau of Economic Research, Inc.
- Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
- Michel Aglietta & Camille Baulant & Virginie Coudert, 1997. "Why the Euro will be Strong: an Approach Based on Equilibrium Exchange Rates," Working Papers 1997-18, CEPII research center.
- 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.
- C. Randall Henning, 2006. "The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention," Working Paper Series, Peterson Institute for International Economics WP06-4, Peterson Institute for International Economics.
- Heimonen, Kari, 2009. "The euro-dollar exchange rate and equity flows," Review of Financial Economics, Elsevier, Elsevier, vol. 18(4), pages 202-209, October.
- Philip Arestis & Iris Biefang- Frisancho Mariscal & Andrew Brown & Malcolm Sawyer, 2001.
"The Causes of Euro Instability,"
- repec:gai:ppaper:52 is not listed on IDEAS
- Pavel Trunin & Dmitriy Kniazev & Ekaterina Kuduykina, 2010.
"Perspective issues in the CBR`s exchange rate policy,"
Research Paper Series, Gaidar Institute for Economic Policy,
Gaidar Institute for Economic Policy, issue 144P.
- Trunin, Pavel & Knyazev, Dmitriy & Kudykina, Ekaterina, 2010.
"Анализ Факторов Динамики Обменного Курса Рубля
[Perspective issues in the CBR`s exchange rate policy]," MPRA Paper 33944, University Library of Munich, Germany.
- Trunin, Pavel & Knyazev, Dmitriy & Kudykina, Ekaterina, 2010. "Анализ Факторов Динамики Обменного Курса Рубля
- Philip Arestis & Andrew Brown & Kostas Mouratidis & Malcolm Sawyer, 2002. "The Euro: Reflections on the first three years," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1), pages 1-17.
- Michael Frenkel & Isabell Koske, 2004. "How well can monetary factors explain the exchange rate of the euro?," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 32(3), pages 233-244, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.