On 12th July 2022, the United States Dollar (USD) and Euro (EUR) hit parity, meaning that 1 USD was equal to 1 EUR. This was the first time in 20 years the two currencies had become 1:1, as prior to this, the EUR was stronger than USD. Additionally, during this period, energy prices were sharply rising due to the Russia-Ukraine conflict, as due to sanctions, the energy supply from Russia to the Euro area was reduced drastically. In my research, I want to measure the share of the change in the value of the EUR that was attributed to the change in energy prices which caused the EUR to fall to parity with the USD. The rise in energy prices is expected to damage the EUR as the countries that use this currency are energy importers and benefit the USD as the US is a large energy exporter. To run this analysis, I have collected monthly data on the US EUR exchange rate, energy prices as well as several controls from January 1999 to September 2022 and I will use the VAR, SVAR, and GARCH techniques on STATA to analyze my data. I expect to find that the rise in energy prices was the predominant reason behind the USD and EUR reaching parity as energy prices have a strong impact on the economy and currency of countries. If the war and unrest continue, we should expect the EUR to continue dropping and this could negatively impact the imports and positively the exports as well as change the nature of tourism in the country.
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