CORRELATIONS BETWEEN RECONSTRUCTEDEUREXCHANGE RATES VERSUSCHF,DKK,GBP,JPYANDUSD

Marcel Ausloos and K. Ivanova
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K. Ivanova: Department of Meteorology, Pennsylvania State University, University Park, PA 16802, USA

International Journal of Modern Physics C (IJMPC), 2001, vol. 12, issue 02, 169-195

Abstract: On 1 January 1999, the European Union introduced a common currency Euro (EUR), to become the legal currency in all eleven countries which form theEUR. In order to test theEURbehavior and understand various features, theEURexchange rate is artificially extrapolated back to 1993 by a linear superposition of the exchange rates of the 11 currencies composingEURwith respect to several currencies not belonging to theEUR, i.e., Swiss Franc (CHF), Danish Kroner (DKK), British Pound (GBP), Japanese Yen (JPY) and U.S. Dollar (USD) of interest for reasons given in the text. The distribution of fluctuations of the exchange rates is shown to be Gaussian for the central part of the distribution, and having fat tails for the large size fluctuations. Within theDetrended Fluctuation Analysis(DFA) statistical method, we have obtained the power law behavior describing the root-mean-square deviation of the exchange rate fluctuations as a function of time. For the period between January 1995 and January 1999, we have compared the time-dependent exponent of these exchange rate fluctuations forEURand that of the 11 currencies which form theEUR. The German Mark (DEM) and the French Franc (FRF) have been the currencies primarily leading the fluctuations of the exchange rates, while Italian Lira (ITL) and Portuguese Escudo (PTE) are the less relevant currencies from this point of view. Technical considerations for theEURimplementation are given as conclusions. The cases of exchange rates withDKKappear quite different from the other four major currencies.

Keywords: Econophysics; Detrended Fluctuation Analysis; Foreign Currency Exchange Rate; Euro; Scaling Hypothesis (search for similar items in EconPapers)
Date: 2001
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DOI: 10.1142/S0129183101001572

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