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How Does the Monetary Model of Exchange Rate Determination Look When It Really Works?

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  • Daniel Garces-Diaz

Abstract

This paper shows that the Mexican experience from 1945 to 2002 is, like the German hyperinflation period, a unique monetary ``natural experiment,'' where fundamental relationships, like money demand, PPP and the monetary model of exchange rate determination can be analyzed with unparalleled clarity. They hold for the whole period and nonoverlapping subsamples. The long span and a conspicuous structural change might be useful in explaining why these theoretical relationships are hard to prove elsewhere. A fascinating switch in the weak exogeneity properties helps to clarify simultaneously the controversies surrounding the exchange rate forecastability and the absence of money in models of inflation

Suggested Citation

  • Daniel Garces-Diaz, 2004. "How Does the Monetary Model of Exchange Rate Determination Look When It Really Works?," Econometric Society 2004 North American Winter Meetings 60, Econometric Society.
  • Handle: RePEc:ecm:nawm04:60
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    References listed on IDEAS

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    Cited by:

    1. Hoda SELIM, "undated". "Has Egypt's Monetary Policy Changed after the Float?," EcoMod2010 259600152, EcoMod.
    2. repec:wsi:medjxx:v:04:y:2012:i:01:n:s1793812012500058 is not listed on IDEAS

    More about this item

    Keywords

    PPP; Monetary Model of Exchange Rate; Inflation; Cointegration; Weak Exogeneity;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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