From the EMS to EMU : Has There Been Any Change in the Behaviour of Exchange Rate Correlation?

This paper investigates exchange rate correlations between the euro (ECU) and other currencies against the US dollar across the EMS and EMU periods to compare the European Central Bank's ability with that of the Bundesbank to achieve internal stability of the euro (ECU). Our results show that evidence of changes from negative-type towards positive-type asymmetry in dynamics is stronger for exchange rate correlations within the European region than outside the region. It is then suggested that the Eurozone monetary authorities' ability to effectively intervene in the foreign exchange markets for maintaining price stability (i.e., internal stability of the euro/ECU) has been improved to a certain degree since the advent of the euro