The monetary model of the exchange rate: long-run relationships, short-run dynamics and how to beat a random walk

MacDonald, R. and Taylor, M. P. (1994) The monetary model of the exchange rate: long-run relationships, short-run dynamics and how to beat a random walk. Journal of International Money and Finance, 13(3), pp. 276-290. (doi:10.1016/0261-5606(94)90029-9)

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Abstract

The monetary model is re-examined for the sterling—dollar exchange rate. First, it is demonstrated, using a multivariate cointegration technique, that an unrestricted monetary model is a valid framework for analyzing the long-run exchange rate. Second, we find, once proper account has been taken of the short-run data dynamics, that an unrestricted monetary model outperforms the random walk and other models in an out-of-sample forecasting contest.

Item Type:Articles
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:Journal of International Money and Finance
Publisher:Elsevier Ltd.
ISSN:0261-5606
ISSN (Online):1873-0639

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