1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Tracking the Euro

During the first two years of monetary union, the euro's weakness surprised most market participants. Explanations proliferated ranging from fundamentals such as differences in growth prospects to psychological factors such as herd behaviour, but no single story fully accounts for the observed exchange rate path. Based on an eclectic approach, this paper offers an empirical analysis showing that terms-of-trade and saving/investment behaviour seem to have driven the euro exchange rate over the medium and longer run. While such econometric estimates ought to be interpreted with due care, they do support the view that towards the end of 2000, the euro was significantly undervalued ...

English

Keywords: eurosystem, intervention, exchange rates, overshooting, euro, ECB, capital flows
JEL: F31: International Economics / International Finance / Foreign Exchange; F32: International Economics / International Finance / Current Account Adjustment; Short-term Capital Movements; F47: International Economics / Macroeconomic Aspects of International Trade and Finance / Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications; E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy; E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy; E65: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Studies of Particular Policy Episodes; E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies; E42: Macroeconomics and Monetary Economics / Money and Interest Rates / Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
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