The Relevance of the Monetary Model for the Euro / USD Exchange Rate Determination: a Long Run Perspective

Dimitris Georgoutsos and Georgios Kouretas

Open Economies Review, 2017, vol. 28, issue 5, No 9, 989-1010

Abstract: Abstract This study tries to fill a vacuum in the literature on the relevance of economic fundamentals for the Euro / USD exchange rate determination. We adopt the Monetary Model for the Exchange Rate Determination as our testing vehicle and investigate the relevance of various versions of this model over a long time horizon, spanning the period from the inception of Euro till the present time. We rely on cointegration analysis to conduct our empirical research and in accordance to the relevant literature we fail to accept most of the variants of this model. However, we get encouraging results from an expanded version of the Monetary Model where demand and productivity factors appear in the set of the exchange rate determinants.

Keywords: Euro-dollar rate; Exchange rate modelling; Cointegration; Predictability (search for similar items in EconPapers)
JEL-codes: C01 C22 F31 F37 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11079-017-9468-6

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