Excess comovements between the Euro/US dollar and British pound/US dollar exchange rates

Michael Kühl ()

No 89, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: The aim of this paper is to discuss excess comovements for the Euro/US dollar and British pound/US dollar exchange rates, i.e. we look for comovements of exchange rates which are stronger than implied by fundamentals. The results of the empirical analysis give evidence that excess comovements indeed exist. A long-run analysis on correlations can verify that the correlations dynamics of exchange rates, relative inflation rates, long-term interest rates, economic sentiments and money supply are linked. We found that money supply and prices play major roles. From the investigation of our exchange rate pair it becomes obvious that non-fundamental factors in exchange rates have an important meaning for modelling foreign exchange rates.

Keywords: Foreign Exchange Market; DCC-GARCH; Excess Comovements (search for similar items in EconPapers)
JEL-codes: E44 F31 G15 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:89

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