Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153965
Authors: 
Ehrmann, Michael
Osbat, Chiara
Stráský, Jan
Uusküla, Lenno
Year of Publication: 
2013
Series/Report no.: 
ECB Working Paper 1532
Abstract: 
This paper studies the determinants of the euro exchange rate during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals. Among the few factors that are found to have affected changes in exchanges rate levels are policy actions at the EU level and by the ECB. The findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared. Still, there are instances where exchange rate volatility was increasing in response to news, such as on days when several politicians from AAA-rated countries went public with negative statements, suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions.
Subjects: 
announcements
Exchange Rates
fundamentals
sovereign debt crisis
JEL: 
E52
E62
F31
F42
G14
Document Type: 
Working Paper

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