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The Relevance of the Monetary Model for the Euro / USD Exchange Rate Determination: a Long Run Perspective

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  • Dimitris A. Georgoutsos

    (Athens University of Economics and Business)

  • Georgios P. Kouretas

    () (IPAG Business School
    Athens University of Economics and Business)

Abstract

This study tries to fill a vacuum in the literature on the relevance of economic fundamentals for the Euro / USD exchange rate determination. We adopt the Monetary Model for the Exchange Rate Determination as our testing vehicle and investigate the relevance of various versions of this model over a long time horizon, spanning the period from the inception of Euro till the present time. We rely on cointegration analysis to conduct our empirical research and in accordance to the relevant literature we fail to accept most of the variants of this model. However, we get encouraging results from an expanded version of the Monetary Model where demand and productivity factors appear in the set of the exchange rate determinants.

Suggested Citation

  • Dimitris A. Georgoutsos & Georgios P. Kouretas, 2017. "The Relevance of the Monetary Model for the Euro / USD Exchange Rate Determination: a Long Run Perspective," Open Economies Review, Springer, vol. 28(5), pages 989-1010, November.
  • Handle: RePEc:kap:openec:v:28:y:2017:i:5:d:10.1007_s11079-017-9468-6
    DOI: 10.1007/s11079-017-9468-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Euro-dollar rate; Exchange rate modelling; Cointegration; Predictability;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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