TY - JOUR
T1 - The monetary model of the exchange rate
T2 - long-run relationships, short-run dynamics and how to beat a random walk
AU - MacDonald, Ronald
AU - Taylor, Mark P.
PY - 1994/6
Y1 - 1994/6
N2 - The monetary model is re-examined for the sterling-dollar exchange rate. First, it is demonstrated, using a multivariate cointegration technique, that an unrestricted monetary model is a valid framework for analyzing the long-run exchange rate. Second, we find, once proper account has been taken of the short-run data dynamics, that an unrestricted monetary model outperforms the random walk and other models in an out-of-sample forecasting contest. (JEL F31).
AB - The monetary model is re-examined for the sterling-dollar exchange rate. First, it is demonstrated, using a multivariate cointegration technique, that an unrestricted monetary model is a valid framework for analyzing the long-run exchange rate. Second, we find, once proper account has been taken of the short-run data dynamics, that an unrestricted monetary model outperforms the random walk and other models in an out-of-sample forecasting contest. (JEL F31).
UR - https://www.scopus.com/pages/publications/38149146963
U2 - 10.1016/0261-5606(94)90029-9
DO - 10.1016/0261-5606(94)90029-9
M3 - Article
AN - SCOPUS:38149146963
SN - 0261-5606
VL - 13
SP - 276
EP - 290
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
IS - 3
ER -