How European Union Floating Exchange Rates Affect the United States Economy
This paper discusses the effect that floating exchange rates have on the dollar/euro relationships in today's economy. These effects can be seen starting in post WWII treaties and leading all the up to today’s talks about expanding the euro zone to 10 central and east European countries. An in-depth look at the evolution from fixed to floating exchange rates allows us to better understand the impacts and problems that we are faced with today. Dollar to euro relations are also looked at directly. In today' s economy we can see how the dollar is viewed as an incumbent and how our government is attempting to maintain our status quo in the world. This will be analyzed by looking directly at time series data of the euro Zone when compared to the United States. The data will help to answer the question "How do floating exchange rates affect the U.S. dollar?" Through data analysis it can be concluded that dollar to euro exchange rates directly affect statistics such as GDP, unemployment, imports, exports, and interest rates. Higher exchange rates tend to work inversely with interest rates. This suggests that as interest rates are falling, we may witness a growth in investment that inevitably spurs our economy. GDP and United States exports also increase at this time, because U.S. goods are cheaper to purchase when exchange rates are low. Unemployment rates also decrease as we are observing this shift in exchange rates. All of these factors are ways of stimulating our economy in times of trouble. The fall of fixed exchange rates in 1978 marked a time of change. This one event in history has helped create a greater stability in international exchange and continues to aid in the growth of United States - euro zone relations.