MacDonald, R. and Taylor, M. P. (1994) Reexamining the monetary approach to the exchange rate: the dollar-franc, 1976—90. Applied Financial Economics, 4(6), pp. 423-430. (doi: 10.1080/758518674)
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Abstract
Using data on the dollar-franc, we reexamine the monetary model of exchange-rate determination in two ways. First, we test its validity as a long-run exchange rate model, using multivariate cointegration techniques. Second, we examine and test the model in its short-run, forward-looking, rational-expectations formulation. We argue that previous tests of the short-run model may have been incorrectly implemented. Using a variant of the Campbell-Shiller technique for testing present-value models, we demonstrate that the static monetary equation has some long-run validity; that, assuming monetary exchange-rate fundamentals, the speculative-bubbles hypothesis is rejected; but that the forward-looking rational expectations restrictions are resoundingly also rejected.
Item Type: | Articles |
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Status: | Published |
Refereed: | Yes |
Glasgow Author(s) Enlighten ID: | MacDonald, Professor Ronald |
Authors: | MacDonald, R., and Taylor, M. P. |
College/School: | College of Social Sciences > Adam Smith Business School > Economics |
Journal Name: | Applied Financial Economics |
Publisher: | Taylor and Francis |
ISSN: | 0960-3107 |
ISSN (Online): | 1466-4305 |
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