The Fit of Dynamic Equilibrium Models of Exchange Rate

Juan Jimenez-Martin and Rafael Flores de Frutos
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Rafael Flores de Frutos: Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. de Fundamentos de Análisis Económico II., https://www.ucm.es/fundamentos-analisis-economico2

Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: The two-country monetary model has become a fundamental tool for explaining the behavior of the exchange rate. However, the popularity of this approach is not justified by its empirical support. One of the reasons for the empirical “failure” of exchange rate models could be the econometric approach applied. In this paper, an alternative procedure for evaluating the fit of dynamic equilibrium models of exchange rate is suggested. This approach is applied to three theoretical models: Lucas (1982), Svensson (1985), and Grilli and Roubini (1992).

Keywords: Exchange rate; Equilibrium model; Seasonality. (search for similar items in EconPapers)
JEL-codes: F31 F37 G15 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2004
New Economics Papers: this item is included in nep-ifn
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