TY  - JOUR
AU  - Sinn,Hans-Werner
AU  - Westermann,Frank
TI  - Why Has the Euro Been Falling? An Investigation into the Determinants of the Exchange Rate
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8352
PY  - 2001
Y2  - July 2001
UR  - http://www.nber.org/papers/w8352
L1  - http://www.nber.org/papers/w8352.pdf
N1  - Author contact info:
Hans-Werner Sinn
Ifo Institute -
Leibniz Institute for Economic Research
at University of Munich
Poschingerstr. 5
81679 Munich
GERMANY
Tel: 49-89-21802748
Fax: 49-89-397303;49-89-8506434 (home)
E-Mail: sinn@ifo.de

Frank Westermann
Department of Economics
Rolandstr. 8
49069 Osnabrueck, Germany
E-Mail: Frank.Westermann@uni-osnabrueck.de
AB  - This paper reconsiders the determinants of the exchange rate by studying the historical episode after the fall of the Iron Curtain. Testing a modified portfolio balance model, we attribute the strength of the deutschmark in the early nineties and the puzzling decline of the euro during its virtual existence to changes in the demand for deutschmarks in eastern Europe and to variations in the demand for black money balances in Europe as a whole. We reject the view that the strength of the dollar and the weakness of the euro reflect the prosperity of the US and the weakness of the European economy on both theoretical and empirical grounds.
ER  -