Using Deutsche Mark Rates to Extend EUR/USD History

Summary

The document considers how to convert long-run U.S. dollar return series into euros when the euro did not exist for the full sample. It suggests using the Deutsche Mark against the U.S. dollar as an approximate predecessor series for EUR/USD, giving researchers a way to construct a proxy exchange-rate history before the euro’s introduction.

The proxy has important limits. European exchange rates around the euro’s creation were influenced by the exchange-rate mechanism and were not fully market determined, so the transition period may not behave like ordinary floating currency data. The response also cautions that much older exchange-rate history needs careful treatment because of the Bretton Woods system. It offers a practical approximation rather than a validated conversion procedure, and does not specify how to handle the transition or assess the proxy’s error.

Key ideas

• The Deutsche Mark against the U.S. dollar can serve as an approximate proxy for pre-euro EUR/USD history.
• Exchange-rate conditions around the euro’s creation were shaped by European currency arrangements.
• Very long historical currency series require care because exchange-rate regimes change.
• The proposed proxy is an approximation and comes without an error analysis.

Tags

# Converting time series returns into euro


# Converting time series returns into euro












I am trying to convert various series of returns into one currency (euro). I saw from aprevious post that soemone suggested using conversion factors, where would I find these? Also, given that the euro only goes back so far is there anyway to get a proxy for historic Eurozone returns?

No, can access the fx data - I suppose my question is if your time series is in US dollars and goes back say 40 years and you want it in Euros, what conversion rate would you use given the Euro hasn't been around that long??

## Answer by Slow Learner (score 1)

https://quant.stackexchange.com/a/8590

The best approximation of EUR/USD crossrate is probably Deutsche Mark - USD. However you need to be careful for the period around the creation of the Euro: due to the exchange rate mechanism European currency rates aren't really fully market-based.

I assume you are aware of the Bretton woods system so won't talk about caveats in using currency data too far back (I see you said you have 40 years of USD data, that sounds about right).

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