Exchange Rates in Search of Fundamentals: The Case of the Euro-Dollar Rate
Paul De Grauwe
No 2575, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
The decline of the euro against the dollar during 1999-2000 was mostly unrelated to observable news about the underlying fundamentals. This corroborates a general finding from the empirical literature testing the traditional exchange rate models, i.e. that exchange rate movements are disconnected from the underlying fundamentals. We formulate an hypothesis allowing us to understand this phenomenon. The core of this hypothesis is that movements in the exchange rates ?anchor? agents? beliefs and lead them to search for fundamentals that will justify these beliefs. We also analyse the implications of this view for the transmission of monetary shocks.
Keywords: Monetary policy; Exchange rates; Rational beliefs; Anchoring (search for similar items in EconPapers)
JEL-codes: F33 F36 F42 (search for similar items in EconPapers)
Date: 2000-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)
Downloads: (external link)
https://cepr.org/publications/DP2575 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
Related works:
Journal Article: Exchange Rates in Search of Fundamentals: The Case of the Euro–Dollar Rate (2000) 
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:cpr:ceprdp:2575
Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2575
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().