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Determining the EUR/USD exchange rate with U.S. and German government bond yields in the post-crisis period

Intellectual Economics

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Title Determining the EUR/USD exchange rate with U.S. and German government bond yields in the post-crisis period
 
Creator Lace, Natalja
Mačerinskienė, Irena
Balčiūnas, Andrius
 
Subject Exchange rates; Exchange rate determination; Interest rates; Government bond yields; Foreign exchange market
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Description This research shows how U.S. and German government bond yields can determine the EUR/USD exchange rate in the short run. After presenting the discussion on fundamental, technical and microstructure approach exchange rate determination models, a conclusion is made that out of the components of fundamental models the interest rates could be the best determinants for explaining exchange rate fluctuations in the short term. For the research the mostly traded currency pair, the EUR/USD, was chosen and 2-year, 10-year U.S. and German government bond yields were selected as determinants of the exchange rate. After performing the linear regression procedure it has shown that the model can determine 5 per cent of the daily EUR/USD fluctuations with a change in 2-year U.S. government debt yield being the greatest determinant in the model. It affects the exchange rate as it is stated in the uncovered interest rate parity model – when the yield increases, the USD declines against the euro and vice versa. Another finding is that an increase in the German 10-year government bond yield increases the price of the euro and the increase in the U.S. 10-year debt yield leads to an appreciation of the USD.
 
Publisher Mykolas Romeris University
 
Contributor —
 
Date 2016-09-16
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier https://www3.mruni.eu/ojs/intellectual-economics/article/view/4417
 
Source Intellectual Economics; Vol 9, No 2 (2015): Intellectual Economics; 150-155
Intelektinė ekonomika; Vol 9, No 2 (2015): Intellectual Economics; 150-155
1822-8038
1822-8011
 
Language eng
 
Relation https://www3.mruni.eu/ojs/intellectual-economics/article/view/4417/4142
 
Rights Copyright (c) 2016 Intellectual Economics