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Econometric Approaches to Empirical Models of Exchange Rate Determination

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  • Pentecost, Eric J

Abstract

This paper identifies four principal econometric approaches to the estimation and testing of asset market models of exchange rate determination: the traditional, static reduced-form approach; the error correction and cointegration, dynamic reduced-form approaches; the simultaneous equations approach; and large scale, multi-equation macroeconometric simulation models. Each of these econometric approaches is evaluated with respect to its theoretical validity and the comparative properties of the empirical results obtained. This leads to the conclusion that although there may be little to choose between the different theoretical exchange rate models, there may be grounds for favoring a multi-equation, simultaneous estimation procedure for this class of models. Copyright 1991 by Blackwell Publishers Ltd

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  • Pentecost, Eric J, 1991. " Econometric Approaches to Empirical Models of Exchange Rate Determination," Journal of Economic Surveys, Wiley Blackwell, vol. 5(1), pages 71-96.
  • Handle: RePEc:bla:jecsur:v:5:y:1991:i:1:p:71-96
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    Cited by:

    1. Wei Sun & Lian An, 2011. "Dynamics of floating exchange rate: how important are capital flows relative to macroeconomic fundamentals?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 35(4), pages 456-472, October.
    2. Wang, Jian-Xin & Wong, Hoi-In, 1997. "The predictability of Asian exchange rates: evidence from Kalman filter and ARCH estimations," Journal of Multinational Financial Management, Elsevier, vol. 7(3), pages 231-252, October.
    3. Wei Sun, "undated". "Why Do Floating Exchange Rates Float? Evidence From Capital Flows in a Structural VAR Model," EcoMod2006 272100092, EcoMod.

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