IDEAS home Printed from https://ideas.repec.org/p/zbw/bubdp1/4138.html
   My bibliography  Save this paper

The determinants of the euro-dollar exchange rate: synthetic fundamentals and a non-existing currency

Author

Listed:
  • Clostermann, Jörg
  • Schnatz, Bernd

Abstract

At the beginning of 1999 the euro was launched as a common currency in 11 European countries. This paper addresses empirically the medium to long-term forces driving the real euro-dollar exchange rate. Constructing a synthetic euro-dollar exchange rate over a period from 1975 to 1998 and applying cointegration approaches, four factors are identified as fundamental determinants of the real euro-dollar exchange rate: the international real interest rate differential, relative prices in the traded and non-traded goods sectors, the real oil price and the relative fiscal position. A single equation error correction model outperforms multivariate models and seems to be best suited to analyse and forecast the behaviour of the euro-dollar exchange rate in the medium-term perspective. If this model is applied to the current developments in foreign exchange markets, the external value of the euro appears to be rather low in the winter of 1999/2000.

Suggested Citation

  • Clostermann, Jörg & Schnatz, Bernd, 2000. "The determinants of the euro-dollar exchange rate: synthetic fundamentals and a non-existing currency," Discussion Paper Series 1: Economic Studies 2000,02, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp1:4138
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/19530/1/200002dkp.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    real exchange rates; fundamentals; cointegration; forecast;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp1:4138. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/dbbgvde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.