Sources of Euro Real Exchange Rate Fluctuations: What Is Behind the Euro Weakness in 1999-2000?

Jan Gottschalk, Jörg Döpke and Christophe Kamps ()

No 1050, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper analyzes the factors underlying the weakness of the euro. For this purpose, the framework advocated by Clarida and Gali (1994) is used. Within this model, three structural shocks drive the dynamics of the endogenous variables: aggregate supply shocks, aggregate spending shocks, and monetary shocks. Applying a structural VAR to data for the eurozone and the U.S. suggests that supply shocks are the most important factor explaining real exchange rate fluctuations in the sample from 1980 to 2000. However, historical decompositions reveal that fluctuations since the introduction of the euro in 1999 have been predominantly driven by demand shocks.

Keywords: Exchange rate; structural vector autoregression; EMU; USA (search for similar items in EconPapers)
JEL-codes: C32 F31 F41 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1050

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