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How Much Simplification is Wise in Modelling Exchange Rates?

In: Exchange Rates in Multicountry Econometric Models

Author

Listed:
  • Jacques Melitz
  • Robert Owen

Abstract

Simple models of the exchange rate generally do not give satisfaction in empirical work. We lack a standard and simple specification of the exchange rate which is dependable. The same set of equations usually yields substantially different results for different data samples, even with respect to sign, and our successful efforts tend to break down with the extension of the sample period. In these circumstances, it is important to examine the question of the minimum degree of sophistication that is wise in analysing exchange rates. My concern with this question should not imply, however, any brief in favour of complexity as such. My only objection to rudimentary models is that they do not work.1

Suggested Citation

  • Jacques Melitz & Robert Owen, 1983. "How Much Simplification is Wise in Modelling Exchange Rates?," Palgrave Macmillan Books, in: Paul Grauwe & Theo Peeters (ed.), Exchange Rates in Multicountry Econometric Models, chapter 1, pages 1-20, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-17286-3_1
    DOI: 10.1007/978-1-349-17286-3_1
    as

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