The monetary model of the exchange rate: A structural interpretation
Mathias Moersch and
Dieter Nautz ()
No 1998,6, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes
We emphasize the importance of properly identifying the long-run relations underlying the monetary model of the exchange rate. The separate estimation of long-run money demands leads to a 'structural' error correction equation which allows an interpretation of the various channels affecting the exchange rate in the monetary model. We apply this approach to the analysis of the DM/Dollar exchange rate where the structural model yields better results than various alternative forecast strategies, among them a random walk.
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:19986
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