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The Monetary Approach to the Exchange Rate Determination for a “Petrocurrency”: The Case of Norwegian Krone

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  • Stephanos Papadamou
  • Thomas Markopoulos

Abstract

This paper, by following vector error correction modeling, empirically investigates some of the popular monetary models of the NOK/USD rate. The empirical results suggest that there is some scope for the monetary approach to explain the development of the NOK/USD during the period from 1997 to 2008. The coefficients in the co-integration equation of both money and output differentials are statistically significant and consistent with any of the forms of the monetary models. Moreover, empirical evidence for the proportionality between the exchange rate and relative money is provided. Our findings are robust across different measures of inflation expectations. Although there is no clear evidence regarding the exact version of the monetary model, the estimated unrestricted error correction models can fit the actual NOK/USD exchange rate. Finally, the short-term dynamics of the exchange rate are significantly affected by changes in crude oil prices. Copyright International Atlantic Economic Society 2012

Suggested Citation

  • Stephanos Papadamou & Thomas Markopoulos, 2012. "The Monetary Approach to the Exchange Rate Determination for a “Petrocurrency”: The Case of Norwegian Krone," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(3), pages 299-314, August.
    • Handle: RePEc:kap:iaecre:v:18:y:2012:i:3:p:299-314:10.1007/s11294-012-9360-5
    DOI: 10.1007/s11294-012-9360-5
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    Cited by:

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    2. Papadimitriou, Theophilos & Gogas, Periklis & Plakandaras, Vasilios, 2013. "Forecasting the NOK/USD Exchange Rate with Machine Learning Techniques," DUTH Research Papers in Economics 5-2013, Democritus University of Thrace, Department of Economics.

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    More about this item

    Keywords

    International financial markets; Foreign exchange; Monetary models; G15; F30; F31;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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