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The dollar–euro exchange rate and monetary fundamentals

Joscha Beckmann (), Dionysius Glycopantis () and Keith Pilbeam ()
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Dionysius Glycopantis: City University London
Keith Pilbeam: City University London

Empirical Economics, 2018, vol. 54, issue 4, No 1, 1389-1410

Abstract: Abstract This study analyzes the relationship between the dollar–euro exchange rate and macroeconomic fundamentals according to the monetary model after 1999. Multivariate and time-varying univariate cointegration techniques are used to test for a long-run equilibrium and changes in the underlying coefficients. Our results provide clear evidence of a long-run relationship between exchange rates and fundamentals. However, we find significant changes in the economic impact of fundamentals on the dollar–euro exchange rate. Both long-run and the short-run coefficients are shown to be strongly time-varying and significantly affected by the financial crisis and the emergence of unconventional monetary policy.

Keywords: Cointegration; Euro–dollar exchange rate; Time-varying coefficient approach (search for similar items in EconPapers)
JEL-codes: E31 F31 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s00181-017-1335-1

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