| Abstract: | This article analyses the impact of productivity developments in the United States and the euro area on the euro-dollar exchange
rate. The article presents a new measure of relative average labour, productivity (ALP) which does not suffer from the biases
implicit in readily available relative ALP data. Importantly, the patterns of these series differ widely. Employing the Johansen
cointegration framework, four models are estimated using four different productivity proxies. Our results indicate that the
extent to which productivity can explain the euro depreciation varies with the productivity proxy used: readily available
measures explain most, our new, preferred measure least. In all models, however, productivity can explain only a fraction
of the actual euro depreciation experienced in 1999–2000. JEL no. F31, C32, O47
The views expressed in this study are those of the authors and do not necessarily reflect those of the European Central Bank
or its staff. |
