Chapter

The equilibrium real value of the euro: An evaluation of research<sup>1</sup>

Jerome L. Stein

in Stochastic Optimal Control, International Finance, and Debt Crises

Published in print April 2006 | ISBN: 9780199280575
Published online May 2006 | e-ISBN: 9780191603501 | DOI: http://dx.doi.org/10.1093/0199280576.003.0005
 							The equilibrium real value of the euro: An evaluation of research1

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Based on the NATREX model in chapter 4, this chapter answers the question: How can one explain the medium to longer run movements in the Synthetic-Euro, which is a basket of currencies of the member countries, from 1973-2000? Based upon the answer to this question, the expected value of the Euro/$US exchange rate in the future is analyzed, conditional upon policies followed in the two areas. The NATREX model, whose fundamentals are relative productivity and thrift, is consistent with the evidence. Both the PPP and Balassa-Samuelson hypotheses are rejected.

Keywords: equilibrium value; Euro exchange rate; NATREX; BEER; PPP; Balassa-Samuelson

Chapter.  11007 words.  Illustrated.

Subjects: Financial Markets

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