The Monetary Model of Exchange Rate: Evidence from the Philippines Using ARDL Approach
AbstractIn this paper, we re-examine the validity of both short and long run monetary models of exchange rate for the case of the Philippines by using new approach called Autoregressive Distributed Lag (ARDL) to cointegration. From our analysis, some findings are obtained. First, there are robust short and long run relationships between variables in the monetary exchange rate model. Second, the stability of the estimated parameters is confirmed by CUSUM and CUMSUQ stability tests. Third, the Purchasing Power Parity (PPP) condition is not hold for the Philippines. Last, all the monetary restrictions are rejected. Therefore, this result seems to suggest that the estimation result of the monetary model of exchange rate, in which monetary restrictions are assumed to be satisfied beforehand, might suffer from a number of deficiency; it is not appropriate to estimate the exchange rate model before the monetary restrictions are confirmed as also mentioned in Haynes and Stone (1981).
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 9822.
Date of creation: Jun 2008
Date of revision:
Exchange rate model; ARDL approach to cointegration;
Other versions of this item:
- 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.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-14 (All new papers)
- NEP-CBA-2008-08-14 (Central Banking)
- NEP-IFN-2008-08-14 (International Finance)
- NEP-MON-2008-08-14 (Monetary Economics)
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