A Puzzle Solved: The Euro is the D.Mark

Universita Cattolica del Sacro Cuore di Milano Working Paper No. 46

28 Pages Posted: 22 Nov 2002

See all articles by Zeno Rotondi

Zeno Rotondi

UNICREDIT; LUISS Guido Carli University

Giacomo Vaciago

Catholic University of the Sacred Heart of Milan - Institute of Economy and Finance

Date Written: September 2002

Abstract

Several alternative explanations have been put forward to explain what has been named the "mystery" of the weak Euro, after it started. We test a new hypothesis which is based on the historical process leading to the new European currency. It was necessary to convince the German public opinion that the Euro would have been as good as the DM.

Also the new European Central Bank - based in Frankfurt - should have been as capable as the Bundesbank in delivering monetary stability. This is therefore the hypothesis that we test and find positive results for. The weakness of the Euro mirrors what would have happened if the D. Mark were still alive. The quest for a more European currency continues.

Keywords: euro, EMU, exchange rates, uncovered interest rate parity, ECB, interest rate rule.

JEL Classification: E50, F30, F41, G15

Suggested Citation

Rotondi, Zeno and Vaciago, Giacomo, A Puzzle Solved: The Euro is the D.Mark (September 2002). Universita Cattolica del Sacro Cuore di Milano Working Paper No. 46, Available at SSRN: https://ssrn.com/abstract=350661 or http://dx.doi.org/10.2139/ssrn.350661

Zeno Rotondi (Contact Author)

UNICREDIT ( email )

VIA SPECCHI 16
ROME, 00186
Italy

HOME PAGE: http://docenti.luiss.it/rotondi

LUISS Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

Giacomo Vaciago

Catholic University of the Sacred Heart of Milan - Institute of Economy and Finance ( email )

Via Necchi 5
20123 Milano
Italy

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