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The Monetary Model of Exchange Rate: Evidence from the Philippines Using ARDL Approach

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Long, Dara
Samreth, Sovannroeun

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Abstract

In 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9822.

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Date of creation: Jun 2008
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Handle: RePEc:pra:mprapa:9822

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Related research
Keywords: Exchange rate model; ARDL approach to cointegration;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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References listed on IDEAS
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.:
  1. Paresh Kumar Narayan, 2008. "Revisiting the US money demand function: an application of the Lagrange multiplier structural break unit root test and the bounds test for a long-run relationship," Applied Economics, Taylor and Francis Journals, vol. 40(7), pages 897-904. [Downloadable!] (restricted)
  2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  3. Chinn, Menzie D., 2000. "Before the fall: were East Asian currencies overvalued?," Emerging Markets Review, Elsevier, vol. 1(2), pages 101-126, September. [Downloadable!] (restricted)
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  4. Lee Chin & M. Azali & Zulkornain Yusop & Mohammed Yusoff, 2007. "The monetary model of exchange rate: evidence from The Philippines," Applied Economics Letters, Taylor and Francis Journals, vol. 14(13), pages 993-997. [Downloadable!] (restricted)
  5. Husted, Steven & MacDonald, Ronald, 1999. "The Asian currency crash: were badly driven fundamentals to blame?," Journal of Asian Economics, Elsevier, vol. 10(4), pages 537-550. [Downloadable!] (restricted)
  6. Mohsen Bahmani-Oskooee & Hafez Rehman, 2005. "Stability of the money demand function in Asian developing countries," Applied Economics, Taylor and Francis Journals, vol. 37(7), pages 773-792, April. [Downloadable!] (restricted)
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Cited by:
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  1. Liew, Venus Khim-Sen, 2009. "Linear and nonlinear monetary approaches to the exchange rate of the Philippines peso-Japanese yen," MPRA Paper 15550, University Library of Munich, Germany, revised 05 Jun 2009. [Downloadable!]
  2. Liew, Venus Khim-Sen & Baharumshah, Ahmad Zubaidi & Puah, Chin-Hong, 2009. "Monetary Model of Exchange Rate for Thailand: Long-run Relationship and Monetary Restrictions," MPRA Paper 17715, University Library of Munich, Germany. [Downloadable!]
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