The question "Does the monetary model explain the exchange rate movement?" is re-examined. Using the simple monetary model, whether or not the exchange rates are cointegrated with the monetary model is tested. With data from seven countries during the recent float period, the panel approach gives favorable results for the monetary model. At the same time, there is no cointegration relationship from the bilateral approach. From the results that the panel methods provide, with a higher power of testing, it seems that some results from previous tests with bilateral rates may become invalid. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.
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