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The Monetary Model of the Dollar-Yen Exchange Rate Determination: A Cointegration Approach


  • M. Faizul Islam

    (Department of Management Studies, Southeastern University, U.S.A.)

  • Mohammad S. Hasan

    (Faculty of Organisation and Management, Sheffield Hallam University, U.K.)


This paper validates the monetary model in the determination of the dollar-yen exchange rate by applying cointegration methodology. Estimation results indicate a stationary relationship between the dollar-yen exchange rate and monetary models, with long-term causality flowing from monetary variables to the dollar-yen exchange rate. The forecasting performance of the monetary model based on the error-correction model outperforms random walk models.

Suggested Citation

  • M. Faizul Islam & Mohammad S. Hasan, 2006. "The Monetary Model of the Dollar-Yen Exchange Rate Determination: A Cointegration Approach," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 5(2), pages 129-145, August.
  • Handle: RePEc:ijb:journl:v:5:y:2006:i:2:p:129-145

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    References listed on IDEAS

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    Cited by:

    1. Khan, Muhammad Arshad & Qayyum, Abdul, 2007. "Exchange Rate Determination In Pakistan: Evidence Based On Purchasing Power Parity Theory," MPRA Paper 6754, University Library of Munich, Germany.

    More about this item


    cointegration; error-correction model; exchange rate; monetary model; random walk model;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics


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