The long-run nominal exchange rate: specification and estimation issues

Weshah Razzak and Thomas Grennes

No G98/5, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: The authors use monthly data from May 1973 to December 1991 to estimate a textbook version of the monetary model of the nominal exchange rate determination. They use a modified version of the Phillips and Loretan (1991) Two-Sided Dynamic Least Squares. This method accounts for the serial correlation in the residuals, the simultaneity, and cointegration among the regressors. The latter condition is consistent with the restriction that the system is homogeneous of degree zero in the money supply differential and the exchange rate. Razzak and Grennes show that most of the empirical problems known to be associated with monetary models can be ameliorated.

JEL-codes: C13 F31 F40 (search for similar items in EconPapers)
Pages: 24p
Date: 1998-11
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Citations: View citations in EconPapers (2)

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