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Cointegration Tests of the Monetary Exchange Rate Model for Three High-Inflation Economies

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  • McNown, Robert
  • Wallace, Myles S

Abstract

Tests of cointegration are applied to the monetary model of the exchange rate to determine if the model represents a long-run equilibrium relation for three high-inflation countries. The countries tested are Argentina, Chile, and Israel, each paired with the United States as the base country. Evidence favorable to cointegration among the variables of the monetary model is found using Johansen's maximum likelihood procedure. Copyright 1994 by Ohio State University Press.

Suggested Citation

  • McNown, Robert & Wallace, Myles S, 1994. "Cointegration Tests of the Monetary Exchange Rate Model for Three High-Inflation Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 396-411, August.
  • Handle: RePEc:mcb:jmoncb:v:26:y:1994:i:3:p:396-411
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    Cited by:

    1. Chyi Lin Lee & Ming-Long Lee, 2012. "Do European real estate stocks hedge inflation? Evidence from developed and emerging markets," ERES eres2012_155, European Real Estate Society (ERES).
    2. Thomas Fullerton & Miwa Hattori & Cuauhtémoc Calderón, 2001. "Error correction exchange rate modeling: Evidence for Mexico," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 25(3), pages 358-368, September.
    3. Carlo Altavilla & Paul De Grauwe, 2010. "Non-linearities in the relation between the exchange rate and its fundamentals," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 1-21.
    4. Håvard Hungnes & Hilde C. Bjørnland, 2006. "The importance of interest rates for forecasting the exchange rate," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(3), pages 209-221.
    5. 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.
    6. CIVCIR Irfan, "undated". "The Monetary Models of the Turkish Lira/Dollar Exchange Rate: Long-run Relationships, Short-run Dynamics and Forecasting," EcoMod2003 330700038, EcoMod.
    7. Baharumshah, Ahmad Zubaidi & M. Masih, A. Mansur & Azali, M., 2002. "The stock market and the ringgit exchange rate: a note," Japan and the World Economy, Elsevier, vol. 14(4), pages 471-486, December.
    8. repec:eme:ijhmap:ijhma-05-2016-0037 is not listed on IDEAS
    9. Irfan Civcir, 2004. "The Long-Run Validity of the Monetary Exchange Rate Model for a High Inflation Country and Misalignment : The Case of Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 40(4), pages 84-100, July.
    10. Irfan Civcir, 2004. "The Long-Run Validity of the Monetary Exchange Rate Model for a High Inflation Country and Misalignment : The Case of Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 40(4), pages 84-100, July.
    11. Panayiotis Diamantis & Dimitris Georgoutsos & George Kouretas, 2001. "The Monetary Approach in the Presence of I(2) Components: A Cointegration Analysis of the Official and Black Market for Foreign Currency in Latin America," Working Papers 0108, University of Crete, Department of Economics.
    12. Mohsen Bahmani-Oskooee & Scott W. Hegerty & Altin Tanku, 2010. "The Black-Market Exchange Rate Versus The Official Rate: Which Rate Fosters The Adjustment Speed In The Monetarist Model?," Manchester School, University of Manchester, vol. 78(6), pages 725-738, December.
    13. Chyi Lin Lee & Ming-Long Lee, 2014. "Do European real estate stocks hedge inflation? Evidence from developed and emerging markets," International Journal of Strategic Property Management, Taylor & Francis Journals, vol. 18(2), pages 178-197, June.
    14. Carlo Altavilla, 2008. "The (UN-) stable relationship between the exchange rate and its fundamentals," Applied Economics Letters, Taylor & Francis Journals, vol. 15(7), pages 539-544.
    15. Sylviane GUILLAUMONT JEANNENEY & Emmanuelle ROUMEGOUS, 2003. "Exchange Rate Dynamics with Currency Substitution: the Case of Ghana, Paraguay and Uruguay," Working Papers 200302, CERDI.
    16. Baharumshah, Ahmad Zubaidi & Masih, A. Mansur M., 2005. "Current account, exchange rate dynamics and the predictability: the experience of Malaysia and Singapore," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(3), pages 255-270, July.
    17. Abbott, Andrew & De Vita, Glauco, 2002. "Testing the long-run structural validity of the monetary exchange rate model," Economics Letters, Elsevier, vol. 75(2), pages 157-164, April.
    18. Antonio Fiorencio & Ajax R. B. Moreira, 2015. "Long-run Determinants of the Real Exchange Rate: Brazil – 1947/95," Discussion Papers 0072, Instituto de Pesquisa Econômica Aplicada - IPEA.
    19. Stefka Slavova, 2003. "Money demand during hyperinflation and stabilization: Bulgaria, 1991-2000," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1303-1316.
    20. Levent, Korap, 2008. "A monetary model of TL/US$ exchange rate: a co-integrating approach," MPRA Paper 20389, University Library of Munich, Germany.
    21. Fritsche, Charmaine Pereira & Wallace, Myles, 1997. "Forecasting the exchange rate PPP versus a random walk," Economics Letters, Elsevier, vol. 54(1), pages 69-74, January.
    22. Irfan Civcir, 2002. "The Long-Run Validity of Monetary Exchange Rate Model for A High Inflation Country and Misalignment: The Case of Turkey," Working Papers 0223, Economic Research Forum, revised 08 Aug 2002.
    23. W A Razzak & Thomas Grennes, 1998. "The long-run nominal exchange rate: specification and estimation issues," Reserve Bank of New Zealand Discussion Paper Series G98/5, Reserve Bank of New Zealand.
    24. Tawadros, George B., 2008. "A structural time series test of the monetary model of exchange rates under four big inflations," Economic Modelling, Elsevier, vol. 25(6), pages 1216-1224, November.

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