Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/17721 
Year of Publication: 
2001
Series/Report no.: 
Kiel Working Paper No. 1050
Publisher: 
Kiel Institute of World Economics (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.
Subjects: 
Exchange rate
structural vector autoregression
EMU
USA
JEL: 
F41
F31
C32
Document Type: 
Working Paper

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