Munich Personal RePEc Archive

Economic Integration and the Foreign Exchange

Weber, Enzo (2007): Economic Integration and the Foreign Exchange.

[img]
Preview
PDF
MPRA_paper_4737.pdf

Download (147kB) | Preview

Abstract

This paper demonstrates effects of economic convergence processes on the foreign exchange behaviour in a monetary modelling approach. Since the exchange rate represents the relative price of two currencies, commonness of stochastic trends between the fundamental determinants of supply and demand of the underlying monies restricts exchange rate movements to transitory fluctuations. In the spirit of optimal currency areas, this has the potential to serve as a criterion for an all-round integration of two economies. Empirically, such a constellation is found between Australia and New Zealand, whereas diverging trends in money and interest rates characterise the relation of Australia towards the US.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.