The Monetary Model Strikes Back: Evidence from the World
43 Pages Posted: 2 Apr 2008
Date Written: March 2008
Abstract
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 fundamentals-based models very successful in beating a random walk in out-of-sample prediction.
Keywords: Working Paper
Suggested Citation: Suggested Citation
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