Monetary Interpretation of Exchange Rates in the South Asian Countries

Mohammad Yunus

Bangladesh Development Studies, 2001, vol. 27, issue 1, 73-103

Abstract: This paper attempts to analyse the extent of influence of the monetary factors in determining exchange rate in the developing countries. In doing so, it presents empirical evidence on the monetary model of exchange rate determination for five South Asian countries over the post-Bretton Woods period using the Johansen multivariate cointegration technique. It finds supportive evidence of long-run relationships between the official and the market exchange rates and the so-called fundamentals. This implies that market fundamentals accounted for the substantial loss of the external values of the currencies over the period under consideration. Therefore, a prudent pursuit of monetary policy is a prerequisite for maintaining stable exchange rate in the long-run in these countries. However, statistical testing of popular restrictions resoundingly rejects the monetary model. Two conclusions are reached: the monetary model can still be a valid representation of the long-run behaviour of the exchange rates; and that the restrictions imposed on the model are in general not valid in view of complex dynamics in the exchange rate determination process.

Keywords: Foreign exchange rates; Floating exchange rates; Empirical evidence; Purchasing power parity (search for similar items in EconPapers)
JEL-codes: A12 (search for similar items in EconPapers)
Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (4)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:ris:badest:0411

Access Statistics for this article

Bangladesh Development Studies is currently edited by Dr. Binayak Sen

More articles in Bangladesh Development Studies from Bangladesh Institute of Development Studies (BIDS) E-17, Agargaon, Sher-E-Bangla Nagar, Dhaka 1207. Contact information at EDIRC.
Bibliographic data for series maintained by Meftaur Rahman, Cheif Publication Officer, BIDS ().