EconPapers    
Economics at your fingertips  
 

Bivariate cointegration of major exchange rates, cross-market efficiency and the introduction of the Euro

Michael Kühl ()

Journal of Economics and Business, 2010, vol. 62, issue 1, 1-19

Abstract: The aim of this paper is to investigate whether the Euro-US dollar exchange rate cointegrates with other major exchange rates since the introduction of the Euro. In order to evaluate whether the introduction of a new currency, which has commonly replaced more and less established currencies, has generated common stochastic trends which are possibly linked to cross-inefficient markets, the results are compared with those of a cointegration analysis of the pre-Euro era. We can show that after the introduction of the Euro two cointegration relationships arise among the Euro-US dollar and the four most important exchange rates, whereas the no-arbitrage condition is satisfied. Here, we discovered a new result: free floating exchange rates are cointegrated after the introduction of the Euro. The Euro-US dollar exchange rate cointegrates with the Australian dollar-US dollar and with the British pound-US dollar. In both cases the Euro-US dollar is weakly exogenous. The results coincide with comovements of important fundamentals which imply cross-market efficiency.

Keywords: Foreign exchange market; Market efficiency; Cointegration (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148-6195(09)00039-3
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:62:y:2010:i:1:p:1-19

Access Statistics for this article

Journal of Economics and Business is currently edited by Kenneth J. Kopecky

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-09-17
Handle: RePEc:eee:jebusi:v:62:y:2010:i:1:p:1-19