Asset-market models of exchange-rate determination: Basic models, empirical evidence and extensions

Simon Sosvilla-Rivero

No 91-24, Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales

Abstract: In this paper we have reviewed the theoretical models associated with those approaches, focusing on the implied reduced-form equations. We have also examined the empirical evidence on these models for the recent floating period, finding that econometric evidence on these models is mixed and inconclusive: they seem to work, to sorne extent, for the first period of the recent floating experience (i. e., 1975-1978), but they do not work so well in the 1980s. In addition, studies by Meese and Rogoff (¡983a, b) have Indicated that the explanatory power of econometric exchange rate models has been extremely poor. They conclude that models of exchange rates could not perform better than a naive random-walk model in the post sample forecasting tests, even when the explanatory variables used were the reallzed values during the post sample period.

Keywords: Asset-market models; Exchange-rate. (search for similar items in EconPapers)
Pages: 107 pages
Date: 1991
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