The Monetary Model Strikes Back: Evidence from the World
March 1, 2008
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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
Pages:
41
Volume:
2008
DOI:
Issue:
073
Series:
Working Paper No. 2008/073
Stock No:
WPIEA2008073
ISBN:
9781451869354
ISSN:
1018-5941
