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What Determines the Forward Exchange Rate of the Euro?

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Abstract

This study examines the determinants of the forward exchange rate of the euro in the context of the “modern approach” for five currency combinations. The co-integration analysis suggests that speculation has played a minor role and arbitrage played a major role in determining the forward exchange rate of the euro.

Suggested Citation

  • Costas Karfakis, 2008. "What Determines the Forward Exchange Rate of the Euro?," Discussion Paper Series 2008_02, Department of Economics, University of Macedonia, revised Feb 2008.
    • Handle: RePEc:mcd:mcddps:2008_02
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    References listed on IDEAS

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    1. Phaup, E Dwight, 1981. "A Reinterpretation of the Modern Theory of Forward Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 477-484, November.
    2. Asmara Jamaleh, 2002. "Explaining and forecasting the euro/dollar exchange rate through a non-linear threshold model," The European Journal of Finance, Taylor & Francis Journals, vol. 8(4), pages 422-448.
    3. McCallum, Bennett T, 1977. "The Role of Speculation in the Canadian Forward Exchange Market: Some Estimates Assuming Rational Expectations," The Review of Economics and Statistics, MIT Press, vol. 59(2), pages 145-151, May.
    4. Costas Karfakis, 2006. "Is there an empirical link between the dollar price of the euro and the monetary fundamentals?," Applied Financial Economics, Taylor & Francis Journals, vol. 16(13), pages 973-980.
    5. Hans R. Stoll, 1968. "An Empirical Study of the Forward Exchange Market under Fixed and Flexible Exchange Rate Systems," Canadian Journal of Economics, Canadian Economics Association, vol. 1(1), pages 55-78, February.
    6. Domenico Sartore & Lucia Trevisan & Michele Trova & Francesca Volo, 2002. "US dollar/Euro exchange rate: a monthly econometric model for forecasting," The European Journal of Finance, Taylor & Francis Journals, vol. 8(4), pages 480-501.
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    More about this item

    Keywords

    Euro; Forward Exchange Rate; Arbitrage; Speculation; Co-integration;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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    This paper has been announced in the following NEP Reports:

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