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A Comparison of Two Alternative Monetary Approaches to Exchange Rate Determination over the Long-Run

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  • Bruce Morley

    () (University of Bath)

Abstract

The aim of this paper is to compare the conventional monetary model of the exchange rate with an alternative model, which incorporates a stock price measure and is based on Friedman?s money demand function. These models are then compared using data from the UK, Canada and the USA, applying the Autoregressive Distributed Lag (ARDL) Bounds testing approach and the Phillips-Hansen approaches to cointegration. Although the results from the conventional monetary model are poor, the version which includes stock prices produces evidence of a long-run relationship, which has more appropriate long-run coefficients than the conventional model.

Suggested Citation

  • 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.
  • Handle: RePEc:erh:journl:v:1:y:2009:i:2:p:63-76
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:joecas:v:10:y:2013:i:2:p:115-128 is not listed on IDEAS
    2. Hina, Hafsa & Qayyum, Abdul, 2015. "Exchange Rate Determination and Out of Sample Forecasting: Cointegration Analysis," MPRA Paper 61997, University Library of Munich, Germany.

    More about this item

    Keywords

    Exchange Rate; Stock Price; ARDL; Cointegration;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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