The Monetary Model Strikes Back: Evidence from the World

Author/Editor:

Valerie Cerra ; Sweta Chaman Saxena

Publication Date:

March 1, 2008

Electronic Access:

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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.

Series:

Working Paper No. 2008/073

Subject:

Exchange rate adjustments Exchange rates Inflation Monetary base Personal income

English

Publication Date:

March 1, 2008

ISBN/ISSN:

9781451869354/1018-5941

Stock No:

WPIEA2008073

Pages:

41

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