The Monetary Model of the Dollar-Yen Exchange Rate Determination: A Cointegration Approach

M. Faizul Islam and Mohammad S. Hasan
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M. Faizul Islam: Department of Management Studies, Southeastern University, U.S.A.
Mohammad S. Hasan: Faculty of Organisation and Management, Sheffield Hallam University, U.K.

International Journal of Business and Economics, 2006, vol. 5, issue 2, 129-145

Abstract: This paper validates the monetary model in the determination of the dollar-yen exchange rate by applying cointegration methodology. Estimation results indicate a stationary relationship between the dollar-yen exchange rate and monetary models, with long-term causality flowing from monetary variables to the dollar-yen exchange rate. The forecasting performance of the monetary model based on the error-correction model outperforms random walk models.

Keywords: cointegration; error-correction model; exchange rate; monetary model; random walk model (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (4)

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