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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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  • Cerra, Valerie & Saxena, Sweta Chaman, 2010. "The monetary model strikes back: Evidence from the world," Journal of International Economics, Elsevier, vol. 81(2), pages 184-196, July.
    • Handle: RePEc:eee:inecon:v:81:y:2010:i:2:p:184-196
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