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Time-Varying Fundamentals of the Euro-Dollar Exchange Rate

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  • Kari Heimonen

Abstract

This study examines changes in the impact of the economic fundamentals on the euro-dollar exchange rate. First, the monetary model is augmented with the equity markets and the model is estimated in its structural form. Second, the time-varying impacts of the long-run fundamentals representing equilibrium in different markets on the euro-dollar exchange rate are examined using Kalman filtering. The time-varying structural model indicated that the relative importance of the different fundamentals was not equal and the impact of the fundamentals was time-dependent.

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  • Kari Heimonen, 2006. "Time-Varying Fundamentals of the Euro-Dollar Exchange Rate," International Economic Journal, Taylor & Francis Journals, vol. 20(4), pages 385-407.
    • Handle: RePEc:taf:intecj:v:20:y:2006:i:4:p:385-407
    DOI: 10.1080/10168730600883515
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