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Tracking the Euro

Author

Listed:
  • Vincent Koen
  • Laurence Boone
  • Alain de Serres
  • Nicola Fuchs

Abstract

During the first two years of monetary union, the euro's weakness surprised most market participants. Explanations proliferated ranging from fundamentals such as differences in growth prospects to psychological factors such as herd behaviour, but no single story fully accounts for the observed exchange rate path. Based on an eclectic approach, this paper offers an empirical analysis showing that terms-of-trade and saving/investment behaviour seem to have driven the euro exchange rate over the medium and longer run. While such econometric estimates ought to be interpreted with due care, they do support the view that towards the end of 2000, the euro was significantly undervalued ... Pendant les deux premières années de l'union monétaire, la faiblesse de l'euro a surpris la plupart des participants aux marchés. Les explications se sont multipliées allant de fondamentaux tels que les différentiels de croissance anticipés aux facteurs psychologiques tels que les comportements grégaires, mais aucune d'entre elles ne rend compte pleinement à elle seule de la trajectoire du taux de change. Partant d'une approche éclectique, ce papier propose une analyse empirique montrant que les termes de l'échange et les comportements d'épargne/investissement ont apparemment sous-tendu l'évolution du taux de change à moyen et plus long terme. Même si des estimations de ce type doivent être interprétées avec précaution, elles confortent le sentiment que vers la fin de l'année 2000 l'euro était significativement sousévalué ...

Suggested Citation

  • Vincent Koen & Laurence Boone & Alain de Serres & Nicola Fuchs, 2001. "Tracking the Euro," OECD Economics Department Working Papers 298, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:298-en
    DOI: 10.1787/536702025320
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    Citations

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    Cited by:

    1. Gabriele Galati & Corrinne Ho, 2001. "Macroeconomic news and the euro/dollar exchange rate," BIS Working Papers 105, Bank for International Settlements.
    2. Giancarlo Corsetti & John Flemming & Seppo Honkapohja & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2002. "The Weakness of the Euro: Is it Really a Mystery?," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 27-42, 04.
      • Giancarlo Corsetti & John Flemming & Seppo Honkapohja & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2002. "The Weakness of the Euro: Is it Really a Mystery?," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2002(CESIFOFOR), pages 27-42, 04.
    3. Mtonga, Elvis, 2006. "The real exchange rate of the rand and competitiveness of South Africa's trade," MPRA Paper 1192, University Library of Munich, Germany.
    4. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    5. Nilsson, Kristian, 2002. "Do Fundamentals Explain the Behavior of the Real Effective Exchange Rate?," Working Papers 78, National Institute of Economic Research.
    6. Mike Artis, 2002. "The Performance of the European Central Bank," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(1), pages 19-29.
    7. Belloc, Marianna & Federici, Daniela, 2010. "A two-country NATREX model for the euro/dollar," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 315-335, March.
    8. Renato Filosa, 2003. "Shock monetari e reali, ciclo economico e valore dell' euro," Moneta e Credito, Economia civile, vol. 56(223), pages 295-324.
    9. Reza Siregar, 2011. "The Concepts of Equilibrium Exchange Rate: A Survey of Literature," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp81.
    10. Kari Heimonen, 2006. "Time-Varying Fundamentals of the Euro-Dollar Exchange Rate," International Economic Journal, Taylor & Francis Journals, vol. 20(4), pages 385-407.
    11. Mr. Guy M Meredith, 2001. "Why Has the Euro Been so Weak?," IMF Working Papers 2001/155, International Monetary Fund.
    12. Ron Alquist & Menzie D. Chinn, 2002. "Productivity and the Euro-Dollar Exchange Rate Puzzle," NBER Working Papers 8824, National Bureau of Economic Research, Inc.
    13. Didier Borowski & Cecile Couharde, 2003. "The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro, the Dollar, the Yen and the Pound Sterling," Open Economies Review, Springer, vol. 14(2), pages 169-190, April.
    14. Gadea, Maria-Dolores & Montanes, Antonio & Reyes, Marcelo, 2004. "The European Union currencies and the US dollar: from post-Bretton-Woods to the Euro," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1109-1136.
    15. Kari Heimonen, 2009. "The euro–dollar exchange rate and equity flows," Review of Financial Economics, John Wiley & Sons, vol. 18(4), pages 202-209, October.
    16. Heimonen, Kari, 2009. "The euro-dollar exchange rate and equity flows," Review of Financial Economics, Elsevier, vol. 18(4), pages 202-209, October.
    17. Bas van Aarle & Harry Garretsen & Florence Huart & Bas Van Aarle, 2003. "Transatlantic Monetary and Fiscal Policy Interaction," CESifo Working Paper Series 1042, CESifo.
    18. Michael Sager, 2006. "Explaining the persistence of deviations from PPP: a non-linear Harrod-Balassa-Samuelson effect?," Applied Financial Economics, Taylor & Francis Journals, vol. 16(1-2), pages 41-61.

    More about this item

    Keywords

    BCE; capital flows; ECB; euro; Euro; eurosystem; Eurosystème; exchange rates; flux de capitaux; intervention; intervention; overshooting; surajustement; taux de change;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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