The euro exchange rate during the European sovereign debt crisis – Dancing to its own tune?

Michael Ehrmann, Chiara Osbat, Jan Stráský and Lenno Uusküla

Journal of International Money and Finance, 2014, vol. 49, issue PB, 319-339

Abstract: This paper studies the determinants of the euro exchange rate volatility during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals. The findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared. Still, there are instances where exchange rate volatility increased in response to news, such as on days when several politicians from AAA-rated countries went public with negative statements, suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions.

Keywords: Exchange rate volatility; Fundamentals; Announcements; Public debate; Sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: E52 E62 F31 F42 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Working Paper: The euro exchange rate during the European sovereign debt crisis - dancing to its own tune? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:49:y:2014:i:pb:p:319-339

DOI: 10.1016/j.jimonfin.2014.06.008

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