The failure of the monetary model of exchange rate determination
In this paper, we test three popular versions of the monetary model (flexible price, forward-looking and real interest differential models) for the OECD member countries by applying Johansen cointegration technique. Based on country-by-country analysis, we conclude that monetary models do not provid...
| Autores: | , , |
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| Formato: | informe técnico |
| Fecha de publicación: | 2015 |
| País: | España |
| Recursos: | Universidad Complutense de Madrid (UCM) |
| Repositorio: | Docta Complutense |
| Idioma: | español |
| OAI Identifier: | oai:docta.ucm.es:20.500.14352/27500 |
| Acesso em linha: | https://hdl.handle.net/20.500.14352/27500 |
| Access Level: | acceso abierto |
| Palavra-chave: | F31 F41 Exchange rate Flexible price monetary model Forward-looking monetary model Real interest differential model Money demand Purchasing power parity Econometría (Economía) Economía internacional Finanzas 5302 Econometría 5310 Economía Internacional |
| Resumo: | In this paper, we test three popular versions of the monetary model (flexible price, forward-looking and real interest differential models) for the OECD member countries by applying Johansen cointegration technique. Based on country-by-country analysis, we conclude that monetary models do not provide the expected results. We reveal several shortcomings of the models and examine the building blocks of the fundamental version. Although researchers always blame the deviations from purchasing power parity as the reason for the failure of the monetary model, our analysis indicates that invalidity of Keynesian money demand function is also responsible for unfavourable results. |
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