The euro exchange rate during the European sovereign debt crisis - dancing to its own tune?

Michael Ehrmann, Chiara Osbat, Jan Stráský and Lenno Uusküla

No 1532, Working Paper Series from European Central Bank

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. JEL Classification: E52, E62, F31, F42, G14

Keywords: announcements; exchange rates; fundamentals; sovereign debt crisis (search for similar items in EconPapers)
Date: 2013-04
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
Note: 203739
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Citations: View citations in EconPapers (15)

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Journal Article: The euro exchange rate during the European sovereign debt crisis – Dancing to its own tune? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20131532

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