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The monetary model strikes back: Evidence from the world

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  • Cerra, Valerie
  • Saxena, Sweta Chaman

Abstract

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 fundamentals-based models very successful in beating a random walk in out-of-sample prediction.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 81 (2010)
Issue (Month): 2 (July)
Pages: 184-196

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Handle: RePEc:eee:inecon:v:81:y:2010:i:2:p:184-196

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Monetary models Exchange rates Out-of-sample forecasts Panel data Cointegration;

References

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Citations

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Cited by:
  1. Onur Ince, 2013. "Forecasting Exchange Rates Out-of-Sample with Panel Methods and Real-Time Data," Working Papers 13-04, Department of Economics, Appalachian State University.
  2. Barbara Rossi, 2013. "Exchange rate predictability," Economics Working Papers 1369, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Philippe Bacchetta & Eric van Wincoop & Toni Beutler, 2009. "Can Parameter Instability Explain the Meese-Rogoff Puzzle?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 09.08, Université de Lausanne, Faculté des HEC, DEEP.
  4. Balke, Nathan S. & Ma, Jun & Wohar, Mark E., 2013. "The contribution of economic fundamentals to movements in exchange rates," Journal of International Economics, Elsevier, vol. 90(1), pages 1-16.
  5. Christophe Amat & Tomasz Michalski & Gilles Stoltz, 2014. "Forecasting exchange rates better than the random walk thanks to machine learning techniques," Working Papers halshs-01003914, HAL.
  6. Charles Engel, 2013. "Exchange Rates and Interest Parity," NBER Working Papers 19336, National Bureau of Economic Research, Inc.
  7. Carlos Lenz & Marcel Savioz, 2009. "Monetary determinants of the Swiss franc," Working Papers 2009-16, Swiss National Bank.
  8. Chun-Teck Lye & Tze-Haw Chan & Chee-Wooi Hooy, 2011. "Nonlinear prediction of Malaysian exchange rate with monetary fundamentals," Economics Bulletin, AccessEcon, vol. 31(3), pages 1960-1967.

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