Determinants of euro-dollar exchange rate: an empirical analysis

This study investigates the determinants of euro-dollar exchange rate since the inception of euro in January 1999. Initial results show that relative changes in consumer confidence in the USA and the Eurozone (CCI), relative consumer price index (CPI), unemployment rate (UMP), and money supply (M1) are important in explaining the value of the euro relative to the US dollar. When accounted for autocorrelation and heteroscedasticity in the data, vector autoregression/vector error correction models (VAR/VECM) show that the euro-dollar exchange rate is impacted by only CCI and M1.