Kiel Working Papers, Kiel Institute for World Economics
No 1050:
Sources of Euro Real Exchange Rate Fluctuations: What Is Behind the Euro Weakness in 1999-2000?
Jörg Döpke, Jan Gottschalk and Christophe Kamps
Abstract: This paper analyzes the factors underlying the weakness of
the euro. For this purpose, the framework advocated by Clarida and Gali
(1994) is used. Within this model, three structural shocks drive the
dynamics of the endogenous variables: aggregate supply shocks, aggregate
spending shocks, and monetary shocks. Applying a structural VAR to data for
the eurozone and the U.S. suggests that supply shocks are the most
important factor explaining real exchange rate fluctuations in the sample
from 1980 to 2000. However, historical decompositions reveal that
fluctuations since the introduction of the euro in 1999 have been
predominantly driven by demand shocks.
Keywords: Exchange rate, structural vector autoregression, EMU, USA; (follow links to similar papers)
JEL-Codes: C32; F31; F41; (follow links to similar papers)
33 pages, May 2001
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