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The Dollar/Euro Exchange Rate

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  • John Williamson

Abstract

While the practical policies toward the exchange rate of the Fed and the ECB are very similar, there is a major philosophical difference between the American view that governments have no business to worry about capital flows and exchange rates versus the European view that these things matter and that floating is simply not defending a particular rate. Under the first view, the only issue is what determines the exchange rate. The literature has concluded that not much can be said about this in the short run, but that in the long run misaligned rates tend to return toward equilibrium (“PPP”). Under the second view, it makes sense to ask what is the “fundamental equilibrium exchange rate” (or some FEER-like concept). Most of the evidence suggests that the dollar/euro rate at the time of writing the article ($1.27) represented at most a modest overshooting.

Suggested Citation

  • John Williamson, 2004. "The Dollar/Euro Exchange Rate," Economie Internationale, CEPII research center, issue 100, pages 51-60.
  • Handle: RePEc:cii:cepiei:2004-4qd
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    File URL: http://www.cepii.fr/IE/rev100/rev100d.htm
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    Cited by:

    1. Comunale, Mariarosaria, 2014. "Euro-dollar polarization and heterogeneity in exchange rate pass-throughs within the euro zone," MPRA Paper 57704, University Library of Munich, Germany, revised Aug 2014.

    More about this item

    Keywords

    Exchange Rates; foreign exchange markets; euro; key currencies; dollar; equilibrium dollar/euro rate; fundamental equilibrium exchange rate;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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