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What is keeping the euro behind the dollar: an empirical analysis based on convenience yields
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Resumo(s)
The EUR has been lagging behind the USD in terms of international usage since its creation. The purpose of this paper is to find possible explanations for this difference and discuss ways to diminish it by focusing on the development of the financial sector. To do that we implement a VAR model for the convenience yields in government bonds(target), the number of safe assets, and the deepness of the financial market. We find that public debt to GDP (quantity of safe assets)and stock market capitalization to GDP (deepness of the market) increase convenience yields in the long run.
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Euro area International reference currencies Fx markets Convenience yields Safe assets Financial deepness Var model