Empirical Economics

, Volume 18, Issue 3, pp 417–429

Exchange rate dynamics and currency unification: The Ostmark-DM rate

Authors

  • Michael Burda
    • INSEAD
    • the Centre for Economic Policy Research
    • Brandeis University
  • Stefan Gerlach
    • INSEAD
    • the Centre for Economic Policy Research
    • Brandeis University
Article

DOI: 10.1007/BF01176196

Cite this article as:
Burda, M. & Gerlach, S. Empirical Economics (1993) 18: 417. doi:10.1007/BF01176196

Abstract

This paper estimates a simple model of the exchange rate between the East and West German Mark immediately preceding German monetary union. Although there is a theoretical literature on exchange rate dynamics when the introduction of a fixed exchange rate is anticipated, the absence of data has limited empirical work on the subject. We show that in the first part of the sample, the DM-Ostmark exchange rate behaves as a random walk. In the second half, when monetary union appeared more likely, the exchange rate behaves as a weighted average of fundamentals and the expected “terminal” exchange rate.

JEL Classification System-Numbers

F31F33F42
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Copyright information

© Physica-Verlag 1993