The Monetary Model Strikes Back: Evidence from the World

Valerie Cerra and Sweta C. Saxena

No 08/73, IMF Working Papers from International Monetary Fund

Abstract: We revisit the dramatic failure of monetary models in explaining exchange rate movements. Using the information content from 98 countries, we find strong evidence for cointegration between nominal exchange rates and monetary fundamentals. We also find fundamentalsbased models very successful in beating a random walk in out-of-sample prediction.

Keywords: Exchange rates; Forecasting models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-for, nep-ifn, nep-mac and nep-mon
Date: 2008-03-28
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