MacDonald, R. and Taylor, M. P. (1993) The monetary approach to the exchange rate: rational expectations, long-run equilibrium, and forecasting. IMF Staff Papers, 40(1), pp. 89-107. (doi: 10.2307/3867378)
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Publisher's URL: http://www.jstor.org/stable/3867378
Abstract
We reexamine the monetary approach to the exchange rate from several perspectives, using monthly data on the deutsche mark-U.S. dollar exchange rate. Using the Campbell-Shiller technique, we reject the restrictions imposed on the data by the forward-looking rational expectations monetary model. The monetary model, however, is validated as a long-run equilibrium condition. Moreover, imposing the long-run monetary model restrictions in a dynamic error-correction framework leads to exchange rate forecasts that are superior to those generated by a random walk forecasting model.
| 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: | IMF Staff Papers |
| Publisher: | International Monetary Fund |
| ISSN: | 1020-7635 |
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