Fahrholz, Christian H. and Schneider, Gerald (2006) Your Worlds are in my Wallet! The Impact of EU Summits on the Euro-Dollar Exchange Rate. ACES Cases No. 2006.1. UNSPECIFIED.
Abstract
The introduction of the euro as legal tender in most member states of the European Union (EU) has further stimulated financial market integration in Europe and beyond. Yet, political manoeuvres have shaped – and sometimes threatened – this process. In this paper, we examine how the summit meetings of the European Union and events that are often considered to be ineffectual have influenced the ups and downs in the euro-dollar exchange rate. Using daily data, we show, with the help of a standard tool in financial econometrics, a GARCH model that summits decrease rather than increase the volatility of this series. Further event studies demonstrate that, while some summits have improved the standing of the European currency, the haggling over the Maastricht criteria at the Feira meeting has hurt the euro.
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