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Is the ECU an optimal currency basket?

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  • Hali J. Edison

Abstract

Recently the role of the ECU has increased and there has been concern whether it is sustainable. The first part of this paper examines the composition of the ECU and investigates the impact of changes in this composition on the value of the ECU. The results show that when there is little exchange rate variability among the currencies that comprise the ECU or when the changes in composition are small the value of the ECU remains stable. The second part of this paper constructs an alternative, optimal basket of currencies for Germany and compares this basket to the ECU. The path of the optimal basket resembles the ECU path but is dramatically different from the DM/$.

Suggested Citation

  • Hali J. Edison, 1986. "Is the ECU an optimal currency basket?," International Finance Discussion Papers 282, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:282
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    References listed on IDEAS

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    1. Edison, Hali J. & Vardal, Erling, 1987. "Optimal currency basket in a world of generalized floating : An application to the Nordic countries," International Journal of Forecasting, Elsevier, vol. 3(1), pages 81-96.
    2. Krasker, William S., 1980. "The `peso problem' in testing the efficiency of forward exchange markets," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 269-276, April.
    3. N/A, 1979. "The European Monetary System," National Institute Economic Review, National Institute of Economic and Social Research, vol. 87(1), pages 5-12, February.
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    Cited by:

    1. Hovanov, Nikolai V. & Kolari, James W. & Sokolov, Mikhail V., 2004. "Computing currency invariant indices with an application to minimum variance currency baskets," Journal of Economic Dynamics and Control, Elsevier, vol. 28(8), pages 1481-1504, June.
    2. Polly Allen, 1993. "Artificial currencies: SDRs and ECUs," Open Economies Review, Springer, vol. 4(1), pages 97-110, March.
    3. Watanabe, Shingo & Ogura, Masanobu, 2010. "How far apart are the two ACUs from each other? Asian currency unit and Asian currency union," Emerging Markets Review, Elsevier, vol. 11(2), pages 152-172, June.

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