The Monetary Approach to the Exchange Rate: Rational Expectations, Long-Run Equilibrium, and Forecasting

Ronald MacDonald and Mark Taylor

IMF Staff Papers, 1993, vol. 40, issue 1, 89-107

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.

JEL-codes: F31 (search for similar items in EconPapers)
Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (117)

Downloads: (external link)
http://www.jstor.org/stable/3867378?origin=pubexport main text (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Monetary Approach to the Exchange Rate: Rational Expectations, Long-Run Equilibrium and Forecasting (1992)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfstp:v:40:y:1993:i:1:p:89-107

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Staff Papers from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().