Publication
May 2001
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 Euro-zone 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.
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English (PDF, 34 pages, 271 KB) |
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Author | Jörg Döpke, Jan Gottschalk, Christophe Kamps |
Series | Kiel Institute Working Papers |
Issue | 1050 |
Publisher | Kiel Institute for the World Economy |
Copyright | © 2001 Kiel Institute for the World Economy |