The Monetary Exchange Rate Model as a Long-Run Phenomenon
Pure time series-based tests fail to find empirical support for monetary exchange rate models. In this paper we apply pooled time series estimation on a forward-looking monetary model, resulting in parameter estimates which are in compliance with the underlying theory. Based on a panel version of the Engle and Granger (1987) two-step procedure we find that the residuals of our pooled estimated model are stationary. This indicates that on a pooled time series level there is cointegration between the exchange rate and the macroeconomic fundamentals of this monetary model.
|cointegration, monetarty exchange rate models, nominal exchange rates, panel data|
|Models with Panel Data (jel C23), International Finance: General (jel F30), International Financial Markets (jel G15)|
|Tinbergen Institute Discussion Paper Series|
Groen, J.J.J. (1998). The Monetary Exchange Rate Model as a Long-Run Phenomenon (No. TI 98-082/2). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/7750