Economic integration and the foreign exchange

Enzo Weber

No 2007-038, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: This paper demonstrates effects of economic convergence processes on the foreign exchange behaviour in a monetary modelling approach. Since the exchange rate represents the relative price of two currencies, commonness of stochastic trends between the fundamental determinants of supply and demand of the underlying monies restricts exchange rate movements to transitory fluctuations. In the spirit of optimal currency areas, this has the potential to serve as a criterion for an all-round integration of two economies. Empirically, such a constellation is found between Australia and New Zealand, whereas diverging trends in money and interest rates characterise the relation of Australia towards the US.

Keywords: Monetary Exchange Rate Model; Convergence; Stationarity; Australia (search for similar items in EconPapers)
JEL-codes: C32 F31 F41 (search for similar items in EconPapers)
Date: 2007
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Related works:
Journal Article: Economic integration and the foreign exchange (2013)
Working Paper: Economic Integration and the Foreign Exchange (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2007-038

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