“Dumb and Dumber” Explanations for Exchange Rate Dynamics

S. Brock Blomberg

Journal of Applied Economics, 2001, vol. 4, issue 2, 187-216

Abstract: The failure of the structural monetary model to beat a random walk in out-of-sample forecasting is one of the most celebrated empirical (non) findings in international finance. In this paper we show that this result is an artifact of the way monetary policy is measured. We construct a simple measure of monetary policy based on the narrative approach of Romer & Romer (1989). Using a linear Gaussian autoregressive specification with exogenous variables (ARX), we demonstrate that a structural monetary model with properly measured money does indeed outperform the random walk in out-of-sample forecasts over a wide range of horizons. We conclude that contrary to the conventional wisdom, money (appropriately defined) is a robust fundamental determinant of short-run exchange rate dynamics.

Date: 2001
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/15140326.2001.12040563 (text/html)
Access to full text is restricted to subscribers.

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:taf:recsxx:v:4:y:2001:i:2:p:187-216

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/recs20

DOI: 10.1080/15140326.2001.12040563

Access Statistics for this article

Journal of Applied Economics is currently edited by Jorge M. Streb

More articles in Journal of Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().