Study of the Dollar-Euro Exchange Rate.

19 Pages Posted: 6 Feb 2007

See all articles by Miguel A. Ariño

Miguel A. Ariño

University of Navarra - IESE Business School

Miguel Angel Canela

University of Barcelona - Faculty of Mathematics

Date Written: March, 2006.

Abstract

In this paper we broadly describe the changes in the dollar-euro exchange rate from the time the euro came into effect at the beginning of 1999 until the end of 2005, using daily data. We show how movements in this exchange rate can be presented in different ways, depending on the time scale we use. First, if we focus on periods of more than six months, the changes in the dollar-euro rate can be described using a succession of linear trends. Superimposed on this trend line are cycles lasting from one to three months. Lastly, on a daily scale, the exchange rate behavior is virtually unpredictable, very close to what econometricians call white noise. These patterns are not exclusive to the dollar-euro rate, but are shared by the dollar exchange rates of most free-floating currencies. Taking the exchange value of the dollar against a basket of currencies used by the Federal Reserve, we show that the patterns we observe may be attributed to changes in the "intrinsic" value of the dollar.

Keywords: Exchange rate, volatility, trade weighted exchange index, random walk

Suggested Citation

Ariño, Miguel A. and Canela, Miguel Angel, Study of the Dollar-Euro Exchange Rate. (March, 2006.). IESE Business School Working Paper No. 620, Available at SSRN: https://ssrn.com/abstract=960675 or http://dx.doi.org/10.2139/ssrn.960675

Miguel A. Ariño (Contact Author)

University of Navarra - IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Miguel Angel Canela

University of Barcelona - Faculty of Mathematics ( email )

Barcelona, 08007
Spain

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