The Dollar-mark Axis
Bank for International Settlements, Monetary and Economic Department, 1999 - Currency question - 18 pages
Over the last two decades, most European currencies have tended to weaken against the mark as the latter strengthened against the dollar. Moreover, the strength of the response of European cross-rates has tended to remain in the same order over time. I first set out the stylised facts of this phenomenon, referred to as the dollar-mark axis, and then try to identify its determinants. In addition to exchange rate policy, I examine the correlation of cyclical fluctuations and trade links (two factors suggested by the theory of optimum currency areas) and the bias of international investors in the currency composition of their portfolios.
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Australian dollar Bayoumi and Eichengreen Bénassy-Quéré 1997 business cycle Canadian dollar changes are estimated characterised foreign exchange correlation coefﬁcient correlation of cyclical correlation of output countries cross-sectional currency links cyclical ﬂuctuations Danish krone dollar area dollar exchange rate dollar-mark axis dollar-mark polarity Eichengreen 1996a elasticities with respect estimated following estimated with daily eurocurrency deposits European currencies Exchange rate elasticities exchange rate policy ﬁnd ﬁnding ﬁrst foreign exchange markets French franc Giovane and Pozzolo Hong Kong dollar intemational and eurocurrency intemational investors intemational portfolio bias Irish pound literature logarithm Malaysian ringgit mark area mark the dollar mark/dollar rate changes measure monetary policies OCA variables optimum currency areas output gaps pattem rate with respect ratio of intemational regressions respect to mark/dollar rolling windows sample period shaping the dollar-mark signiﬁcant role Singapore dollar statistically signiﬁcant stylised facts Swedish krona Swiss franc Taiwan dollar Thai baht time-series trade links variable that captures