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A Portfolio-Based Analysis of Movements in the Euro-Dollar Rate

In: The Travails of the Eurozone

Author

Listed:
  • Ali Al-Eyd
  • Ray Barrell
  • Dawn Holland

Abstract

Since its inception on 1 January 1999, the euro, as measured against the US dollar, has experienced a period of sustained weakness followed by a period of sustained strength. After weakening slightly since the beginning of 2005, the euro is currently hovering around its initial value. Conventional models of exchange-rate behaviour (see Isard, 1995) rely on underlying economic fundamentals to explain exchange-rate paths. However, as De Grauwe (2000) discusses, these models do not provide clear guidance for an analysis of the factors driving the fluctuations in the euro, as speculative market activity or other noise can dominate the role of fundamentals in the short term. The movements of the euro/dollar exchange rate are not easily explained, as it is difficult to disentangle the roles of economic fundamentals and ‘news’ from ‘pure noise’ (a random walk).

Suggested Citation

  • Ali Al-Eyd & Ray Barrell & Dawn Holland, 2007. "A Portfolio-Based Analysis of Movements in the Euro-Dollar Rate," Palgrave Macmillan Books, in: David Cobham (ed.), The Travails of the Eurozone, chapter 12, pages 293-314, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-80147-9_12
    DOI: 10.1057/9780230801479_12
    as

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