A Portfolio-Based Analysis of Movements in the Euro-Dollar Rate

Ali Al-Eyd, Ray Barrell and Dawn Holland

Chapter 12 in The Travails of the Eurozone, 2007, pp 293-314 from Palgrave Macmillan

Abstract: Abstract Since its inception on 1 January 1999, the euro, as measured against the US dollar, has experienced a period of sustained weakness followed by a period of sustained strength. After weakening slightly since the beginning of 2005, the euro is currently hovering around its initial value. Conventional models of exchange-rate behaviour (see Isard, 1995) rely on underlying economic fundamentals to explain exchange-rate paths. However, as De Grauwe (2000) discusses, these models do not provide clear guidance for an analysis of the factors driving the fluctuations in the euro, as speculative market activity or other noise can dominate the role of fundamentals in the short term. The movements of the euro/dollar exchange rate are not easily explained, as it is difficult to disentangle the roles of economic fundamentals and ‘news’ from ‘pure noise’ (a random walk).

Keywords: Exchange Rate; Monetary Policy; Current Account; Euro Area; Real Exchange Rate (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-80147-9_12

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DOI: 10.1057/9780230801479_12

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