Document Type

Journal Article

Department/Unit

Department of Economics

Title

Evolution of the Trans-Atlantic exchange rate before and after the birth of the Euro and policy implications

Language

English

Abstract

The establishment of the Euro could present a challenge to the hegemony of the US Dollar as the predominant international currency. The fact that the unipolar US Dollar dominated international monetary system can be unstable in the presence of large shocks presents an opportunity for the Euro to promote systemic stability. The present study pursues this conjecture by exploring with cointegration and Error Correction Method techniques, the interdependence between the dynamics of the Dollar/Euro exchange rate and economic fundamentals in the context of a monetary exchange rate model. Our results suggest that both short-run (price stickiness) and long-run (secular growth) fundamentals affect the exchange rate path. These findings support a relatively broad-based policy approach to promote the collective economic interest of the EU-zone. To the extent that such policies succeed in strengthening and stabilizing the Euro-zone economy, they are likely to buttress and possibly accelerate the internationalization of the Euro. © 2011 Taylor & Francis.

Publication Date

2011

Source Publication Title

Applied Economics

Volume

43

Issue

16

Start Page

1965

End Page

1977

Publisher

Taylor & Francis

DOI

10.1080/00036840902845509

Link to Publisher's Edition

http://dx.doi.org/10.1080/00036840902845509

ISSN (print)

00036846

ISSN (electronic)

14664283

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