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Post Keynesian versus neoclassical explanations of exchange rate movements: a short look at the long run

Listed author(s):
  • JOHN T. HARVEY

In this paper, a series of empirical tests are conducted comparing the explanatory power of the neoclassical approach (in particular, purchasing power parity and the monetary model) with that of a long-run exchange rate model based on Post Keynesian premises (the tests use annual data for the dollar- deutsche mark and the dollar-yen from 1975 through 1998). It is shown that, despite the shift in time horizon and the biasing of the tests in favor of the neoclassical approach, the Post Keynesian approach still shows a much tighter fit to the historical facts.

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Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 28 (2006)
Issue (Month): 2 (January)
Pages: 161-179

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Handle: RePEc:mes:postke:v:28:y:2006:i:2:p:161-179
Contact details of provider: Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

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  1. Rapach, David E. & Wohar, Mark E., 2002. "Testing the monetary model of exchange rate determination: new evidence from a century of data," Journal of International Economics, Elsevier, vol. 58(2), pages 359-385, December.
  2. Lopez, Claude & Murray, Christian J & Papell, David H, 2005. "State of the Art Unit Root Tests and Purchasing Power Parity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 361-369, April.
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