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MONETARY APPROACH TO EXCHANGE RATE DETERMINATION: The Case of Argentina, Brazil, Taiwan and Turkey, 1986-2006

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  • Idil UZ
  • Mehrin DALAN

Abstract

This study evaluates the short-run and long-run performance of the monetary model approach of exchange rate determination for the emerging economies like Argentina, Brazil, Taiwan and Turkey. The study is based on whether there is a cointegration relationship between the nominal exchange rate and the monetary variables such as the money supply, the output, the nominal interest rate and the price differentials. Various estimation techniques are used for testing long-run relationship both for single-country analysis and panel analysis.

Suggested Citation

  • Idil UZ & Mehrin DALAN, 2009. "MONETARY APPROACH TO EXCHANGE RATE DETERMINATION: The Case of Argentina, Brazil, Taiwan and Turkey, 1986-2006," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(2).
    • Handle: RePEc:eaa:aeinde:v:9:y:2009:i:2_5
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    References listed on IDEAS

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    1. Jeremy Berkowitz & Lorenzo Giorgianni, 2001. "Long-Horizon Exchange Rate Predictability?," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 81-91, February.
    2. Uz, Idil & Ketenci, Natalya, 2008. "Panel analysis of the monetary approach to exchange rates: Evidence from ten new EU members and Turkey," Emerging Markets Review, Elsevier, vol. 9(1), pages 57-69, March.
    3. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
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    6. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
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    8. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-218, March.
    9. 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.
    10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    11. MacDonald, Ronald & Taylor, Mark P., 1991. "The monetary approach to the exchange rate : Long-run relationships and coefficient restrictions," Economics Letters, Elsevier, vol. 37(2), pages 179-185, October.
    12. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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    Cited by:

    1. Bahar Erdal, 2018. "Monetary Approach to Exchange Rate Determination under Flexible Exchange Rate Regime: Empirical Evidence from Turkey," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 8(3), pages 1-1.
    2. Hsing, Yu, 2016. "Comparison of the Fundamental and Monetary Models of the Determinants of the Argentine Peso/US Dollar Exchange Rate," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(4), pages 379-388.
    3. Coppola,Andrea & Lagerborg,Andresa & Mustafaoglu,Zafer, 2016. "Estimating an equilibrium exchange rate for the Argentine Peso," Policy Research Working Paper Series 7682, The World Bank.

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    More about this item

    Keywords

    Exchange rates; monetary fundamentals; cointegration; panel analysis;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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