AN INQUIRY ON THE SECULAR TRENDS IN THE DOLLAR-EURO EXCHANGE RATE, CRUDE OIL PRICING, AND MARKET VALUES
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This study examines secular trends in the pricing ofthe euro and the prospects ofthe new European currency to compete with the US dollar in denominating international assets. The global importance of crude. oil as the worlds largest cash commodity provides a basis to evaluate the short- and long-run dynamics o f the value o f the euro vis-a-vis crude oil price as well as stock market and interest rate variables. Variance decompositions show that innovations in oil price and U.S. interest rates explain most of the intertemporal variations of the euro. Conversely, the contribution of the euro to oil price volatility is marginal especially after European stock market effects have been accounted. Notwithstanding, a long-run positive trend seems to exist between oil price and euro as evidenced by their impulse response .functions.
Abstract
This study examines secular trends in the pricing ofthe euro and the prospects ofthe new European currency to compete with the US dollar in denominating international assets. The global importance of crude. oil as the worlds largest cash commodity provides a basis to evaluate the short- and long-run dynamics o f the value o f the euro vis-a-vis crude oil price as well as stock market and interest rate variables. Variance decompositions show that innovations in oil price and U.S. interest rates explain most of the intertemporal variations of the euro. Conversely, the contribution of the euro to oil price volatility is marginal especially after European stock market effects have been accounted. Notwithstanding, a long-run positive trend seems to exist between oil price and euro as evidenced by their impulse response .functions.