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Cointegration and the Monetary Exchange Rate Model Revisited

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  • Groen, Jan J J

Abstract

To test for cointegration in a multiple of countries a number of procedures are available: a panel vector error correction framework, a panel-data version of the Engle and Granger (1987) two-step procedure and the Johansen (1991) trace statistic. We apply these three methods on two four-country datasets consisting of the exchange rate data and monetary fundamentals relative to both the United Kingdom and the United States to test the empirical validity of the monetary exchange rate model. Of the three aforementioned methods only the panel vector error correction approach provides evidence for the validity of both the cointegration restriction as well as the long-run parameter restrictions of the monetary model, irrespective of the numeraire country. Copyright 2002 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 64 (2002)
Issue (Month): 4 (September)
Pages: 361-80

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Handle: RePEc:bla:obuest:v:64:y:2002:i:4:p:361-80

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Cited by:
  1. Bruce Morley, 2009. "A Comparison of Two Alternative Monetary Approaches to Exchange Rate Determination over the Long-Run," Articles of International Econometric Review (IER), Econometric Research Association, vol. 1(2), pages 63-76, April.
  2. Nelson C. Mark, 2005. "Changing Monetary Policy Rules, Learning, and Real Exchange Rate Dynamics," NBER Working Papers 11061, National Bureau of Economic Research, Inc.
  3. Uz, Idil & Ketenci, Natalya, 2008. "Panel analysis of the monetary approach to exchange rates: Evidence from ten new EU members and Turkey," Emerging Markets Review, Elsevier, vol. 9(1), pages 57-69, March.
  4. M. Faizul Islam & Mohammad S. Hasan, 2006. "The Monetary Model of the Dollar-Yen Exchange Rate Determination: A Cointegration Approach," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 5(2), pages 129-145, August.
  5. Luis Eduardo Arango & Luis Fernando Melo, . "Determinantes de la elección de administradora de pensiones: primeras estimaciones a partir de agregados," Borradores de Economia 383, Banco de la Republica de Colombia.
  6. Jesús Crespo-Cuaresma & Jarko Fidrmuc & Maria Antoinette Silgoner, 2004. "Exchange Rate Developments and Fundamentals in Four EU Accession and Candidate Countries: Bulgaria, Croatia, Romania and Turkey," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 119 - 137.
  7. Michael McMahon & Gabriel Sterne & Jamie Thompson, 2005. "The role of ICT in the global investment cycle," Bank of England working papers 257, Bank of England.
  8. Basher, Syed A. & Westerlund, Joakim, 2008. "Panel Cointegration and the Monetary Exchange Rate Model," MPRA Paper 10453, University Library of Munich, Germany.
  9. Jan J J Groen & Clare Lombardelli, 2004. "Real exchange rates and the relative prices of non-traded and traded goods: an empirical analysis," Bank of England working papers 223, Bank of England.
  10. J.J.J. Groen, 2001. "(EURO) Exchange Rate Predictability and Monetary Fundamentals in a Small Multi-Country Panel," WO Research Memoranda (discontinued) 664, Netherlands Central Bank, Research Department.
  11. Nautz, Dieter & Offermanns, Christian J., 2006. "Does the Euro follow the German Mark? Evidence from the monetary model of the exchange rate," European Economic Review, Elsevier, vol. 50(5), pages 1279-1295, July.
  12. Kühl, Michael, 2008. "Strong comovements of exchange rates: Theoretical and empirical cases when currencies become the same asset," Center for European, Governance and Economic Development Research Discussion Papers 76, University of Goettingen, Department of Economics.

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