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Euro-Dollar: Face-to-Face

Author

Listed:
  • Agnès Bénassy-Quéré
  • Sophie Béreau
  • Valérie Mignon

Abstract

The financial crisis that began during the summer of 2007 accelerated the depreciation of the dollar. Has the dollar now fallen far enough for global disequilibria to be reabsorbed and for a reappreciation to take place? What do the two methods commonly used to determine medium- or long-term equilibrium exchange rates tell us? The results they give differ, but they both indicate that the dollar and the euro are overvalued in real effective terms. The two currencies should therefore depreciate in relation to other currencies. The abruptness of the dollar's depreciation since summer 2007 might mean that the U.S. currency's current weakness will be relatively short-lived. As for the euro, its depreciation against other currencies is countered by the fact that it forms the main alternative to the dollar.

Suggested Citation

  • Agnès Bénassy-Quéré & Sophie Béreau & Valérie Mignon, 2008. "Euro-Dollar: Face-to-Face," La Lettre du CEPII, CEPII research center, issue 279.
  • Handle: RePEc:cii:cepill:2008-279
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    File URL: http://www.cepii.fr/PDF_PUB/lettre/2008/let279.pdf
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    More about this item

    Keywords

    DOLLAR; EURO; EXCHANGE RATE POLICY;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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