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The Monetary Model Strikes Back; Evidence from the World

  • Valerie Cerra
  • Sweta Chaman Saxena

We revisit the dramatic failure of monetary models in explaining exchange rate movements. Using the information content from 98 countries, we find strong evidence for cointegration between nominal exchange rates and monetary fundamentals. We also find fundamentalsbased models very successful in beating a random walk in out-of-sample prediction.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/73.

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Length: 41
Date of creation: 01 Mar 2008
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Handle: RePEc:imf:imfwpa:08/73
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