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
Tinbergen Institute

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