IMF Working Papers

The Monetary Model Strikes Back: Evidence from the World

By Valerie Cerra, Sweta Chaman Saxena

March 1, 2008

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Valerie Cerra, and Sweta Chaman Saxena. The Monetary Model Strikes Back: Evidence from the World, (USA: International Monetary Fund, 2008) accessed October 13, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We revisit the dramatic failure of monetary models in explaining exchange rate movements. Using the information content from 98 countries, we find strong evidence for cointegration between nominal exchange rates and monetary fundamentals. We also find fundamentalsbased models very successful in beating a random walk in out-of-sample prediction.

Subject: Exchange rate adjustments, Exchange rates, Inflation, Monetary base, Personal income

Keywords: Common time, Null hypothesis, WP

Publication Details

  • Pages:

    41

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2008/073

  • Stock No:

    WPIEA2008073

  • ISBN:

    9781451869354

  • ISSN:

    1018-5941