Study of the dollar-euro exchange rate

Miguel A. Ariño () and Miguel A. Canela
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Miguel A. Ariño: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
Miguel A. Canela: Universitat de Barcelona

No D/620, IESE Research Papers from IESE Business School

Abstract: In this paper we broadly describe the changes in the dollar-euro exchange rate from the time the euro came into effect at the beginning of 1999 until the end of 2005, using daily data. We show how movements in this exchange rate can be presented in different ways, depending on the time scale we use. First, if we focus on periods of more than six months, the changes in the dollar-euro rate can be described using a succession of linear trends. Superimposed on this trend line are cycles lasting from one to three months. Lastly, on a daily scale, the exchange rate behavior is virtually unpredictable, very close to what econometricians call white noise. These patterns are not exclusive to the dollar-euro rate, but are shared by the dollar exchange rates of most free-floating currencies. Taking the exchange value of the dollar against a basket of currencies used by the Federal Reserve, we show that the patterns we observe may be attributed to changes in the "intrinsic" value of the dollar.

Keywords: Exchange rate; volatility; trade weighted exchange index; random walk (search for similar items in EconPapers)
Pages: 19 pages
Date: 2006-03-25, Revised 2006-03-30
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:iesewp:d-0620

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