In this paper a panel of vector error-correction models based on a common long-run relationship is utilized to test whether the Euro exchange rates of Canada, Japan, and the United States have a long-run link with monetary fundamentals. We use both exchange relationships relative to the full EMU area (with synthetic aggregates for the pre-EMU period) and relative to Germany solely. Compared to existing cointegration frameworks our approach provides more evidence that the aforementioned exchange rates are consistent with a rational expectations-based monetary exchange rate model based on a common long-run relationship, albeit with a long-run impact of relative income that is higher than predicted by the theory. As a next step we analyze the out-of-sample fit of this common long-run exchange rate model relative to naive random walk-based forecasts. These forecasting evaluations indicate that the monetary fundamentals-based common long-run model is superior to both random walk-based forecasts and standard cointegrated VAR model-based forecasts, especially at horizons of 2 to 4 years.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Volume (Year): 37 (2005) Issue (Month): 3 (June) Pages: 495-516 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).
Related research
Keywords:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)