long-term determinants of the real exchange rate euro-dollar exchange rate
Ma, Xiao (2008) long-term determinants of the real exchange rate euro-dollar exchange rate. [Dissertation (University of Nottingham only)] (Unpublished)
Since 1999, the launch of euro undoubtedly threats the dominant position of the U.S. dollar. This study attempts to empirically examine link between the long-term forces driving the real euro-dollar exchange rate. In literature review, it provides consistent theoretical frameworks proposed by Purchasing Power Parity, Balassa-Samuelson effect, Uncovered Interest Parity and Balance of Payment. Under theoretical frameworks and empirical review, five fundamental determinants are identified as real relative interest rate, productivity differentials, real oil price, trade balance and government control, which is a unquantifiable determinant, to generate real euro-dollar exchange rate movements. Time-series data covered the period of January 1999 to March 2008. We apply the method of Augmented Dickey-Fuller and Phillips-Perron unit root tests to check whether the data are stationary, Autoregressive distributed lagged (ARDL) bounding and Error Correction Mechanism tests to estimate the coefficient parameters. The results indicate that real relative interest rate and productivity differentials have a positive and significant influence on the real euro-dollar exchange rate; while we find statistically insignificant long-term relationship between trade balance and real exchange rate, and between real oil price and real exchange rate.
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