Some Evidence on Exchange Rate Determination in Major Industrial Countries

38 Pages Posted: 15 Feb 2006

See all articles by R. Barry Johnston

R. Barry Johnston

International Monetary Fund (IMF)

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department

Date Written: August 1997

Abstract

This paper examines the role of long-run monetary and cyclical factors in determining exchange rate movements. Results of empirical study using a data set that includes Canada, Germany, Japan, the United Kingdom, and the United States support the view that exchange rate movements can be explained by the efficient or rational adjustment of foreign exchange markets to economic fundamentals. In the long run, the exchange rate is determined consistent with a monetary approach to exchange rates, while cyclical factors have an impact on short-run exchange rate dynamics. Estimated equations outperform random walk models of exchange rates.

JEL Classification: F31, F47

Suggested Citation

Johnston, R. Barry and Sun, Yan, Some Evidence on Exchange Rate Determination in Major Industrial Countries (August 1997). IMF Working Paper, Vol. , pp. 1-38, 1997. Available at SSRN: https://ssrn.com/abstract=882615

R. Barry Johnston (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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