Some Evidenceon Exchange Rate Determination in Major Industrial Countries
IMF Working Papers, August 1, 1997
Source details
- Canonical URL
- Some Evidenceon Exchange Rate Determination in Major Industrial Countries
Other formats
Bibliographic details
- Authors: Yan M Sun, R. B. Johnston
- Published: August 1, 1997
- Series: IMF Working Papers
Summary
- This paper examines the role of long-run monetary and cyclical factors in determining exchange rate movements.
- Results of empirical study using a data set that includes Canada, Germany, Japan, the United Kingdom, and the United States support the view that exchange rate movements can be explained by the efficient or rational adjustment of foreign exchange markets to economic fundamentals.
- In the long run, the exchange rate is determined consistent with a monetary approach to exchange rates, while cyclical factors have an impact on short-run exchange rate dynamics.
- Estimated equations outperform random walk models of exchange rates.
Empirical Scope and Data
- Countries included: Canada, Germany, Japan, the United Kingdom, and the United States.
- Estimated equations compare to random walk models of exchange rates.
Key Findings
- Long-run exchange rate behavior is consistent with a monetary approach to exchange rates.
- Cyclical factors materially affect short-run exchange rate dynamics.
- Empirical estimates from the study outperform random walk benchmarks for exchange rate prediction.
Subjects and Keywords
- Subjects: Balance of payments, Currency markets, Current account balance, Exchange rate arrangements, Exchange rates, Financial markets, Foreign exchange, Inflation, Prices
- Keywords: Currency markets, Current account balance, excess demand, Exchange rate arrangements, exchange rate movement, Exchange rates, inferring exchange rate misalignment, Inflation, single-equation estimate, U.S. dollar exchange rate, WP
Content in this bundle
- Some Evidence on Exchange Rate Determination in Major Industrial Countries - WP/97/98