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The predictive power of the monetary model of exchange rate determination

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  • George Tawadros
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    Abstract

    This study examines the predictive power of the monetary model of exchange rate determination for the Australian dollar vis-a-vis the US dollar exchange rate. Using a cointegration-based error-correction model, it is found that an unrestricted dynamic monetary model outperforms the random walk model at all forecasting horizons, with the degree of improvement increasing as the forecasting horizon is extended.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/096031001300138672
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 11 (2001)
    Issue (Month): 3 ()
    Pages: 279-286

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    Handle: RePEc:taf:apfiec:v:11:y:2001:i:3:p:279-286

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    Cited by:
    1. Stephanos Papadamou & Thomas Markopoulos, 2012. "The Monetary Approach to the Exchange Rate Determination for a “Petrocurrency”: The Case of Norwegian Krone," International Advances in Economic Research, Springer, vol. 18(3), pages 299-314, August.
    2. Peter Rowland, 2003. "Forecasting The Usd/Cop Exchange Rate: A Random Walk With A Variable Drift," BORRADORES DE ECONOMIA 002736, BANCO DE LA REPÚBLICA.
    3. Lee, Chin & M., Azali & Yusop, Zulkornain & Yusoff, Mohammed, 2008. "Is Malaysia exchange rate misalignment before the 1997 crisis?," MPRA Paper 40430, University Library of Munich, Germany.
    4. Bruce Morley, 2009. "A Comparison of Two Alternative Monetary Approaches to Exchange Rate Determination over the Long-Run," International Econometric Review (IER), Econometric Research Association, vol. 1(2), pages 63-76, April.
    5. Moosa, Imad & Burns, Kelly, 2014. "The unbeatable random walk in exchange rate forecasting: Reality or myth?," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 69-81.
    6. Lee, Chin & Law, Chee-Hong, 2013. "The Effects of Trade Openness on Malaysian Exchange Rate," MPRA Paper 45185, University Library of Munich, Germany.
    7. Jae-Kwang Hwang, 2003. "Dynamic forecasting of sticky-price monetary exchange rate model," Atlantic Economic Journal, International Atlantic Economic Society, vol. 31(1), pages 103-114, March.
    8. Daniel MITCHELL RESTREPO, 2006. "Forecasting the Colombian Exchange Rate: Capital Adjustments and Politics vs. Traditional IRP, Trade Adjustments and Random Walk Frameworks," ARCHIVOS DE ECONOMÍA 011228, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    9. Thomas M Fullerton Jr & Miwa Hattori & Cuauhtemoc Calderon, 2004. "Error Correction Exchange Rate Modeling Evidence for Mexico," International Finance 0406001, EconWPA.
    10. Sovannroeun SAMRETH & Dara LONG, 2008. "The Monetary Model of Exchange Rate: Evidence from the Philippines Using ARDL Approach," Economics Bulletin, AccessEcon, vol. 6(31), pages 1-13.
    11. Peter Rowland, . "Forecasting the USD/COP Exchange Rate: A Random Walk a Variable Drift," Borradores de Economia 253, Banco de la Republica de Colombia.
    12. Tawadros, George B., 2008. "A structural time series test of the monetary model of exchange rates under four big inflations," Economic Modelling, Elsevier, vol. 25(6), pages 1216-1224, November.

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