The Monetary Policy of the European Central Bank and the Euro-Dollar Exchange Rate

Abstract

The aim of the research is the evaluation of the exchange rate of the Euro after the first six months of its existence. The main interpretative hypotheses of the research can be summarized in the following points: (i) the evolution of the Euro external value is strictly connected with the agents? confidence on real, financial and foreign exchange markets; (ii) the ECB monetary policy strategy influenced negatively (or at least neglected) the agents? confidence and expectations already affected by the negative cyclical conditions of european economy; (iii) the resulting portfolio reallocation determined a short-term capital outflow in favour of US Dollar denominated assets and, hence, an Euro depreciation. The consistency of the whole framework is checked by variables as the Industrial Sentiment, the Interest-Rate Spread, the Implied Volatility of exchange rates, the Risk Reversal, and by the building of a Structural Autoregressive Model.