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Is the Monetary Model Useful in Explaining Exchange Rates? - Panel Cointegration Evidence

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Authors
Ahn, ByungChul; Oh, KeunYeob
Issue Date
2001-04
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.14 No.2, pp. 169-182
Keywords
monetary modelpanel cointegration
Abstract
A number of studies have sought to provide a reasonable explanation for exchange rate determination. The most frequently used approach is based on monetary models. However, it is difficult to find a cointegration relationship between exchange rates and relative differentials of money and income using this approach. This does not mean that a cointegration relationship does not exist. Conventional single equation approaches simply have a low performance power. We employed the panel cointegration approach to overcome this potential problem. We formulated a system of monetary models for 8 nations and found that cointegration relationships existed. Given these cointegration relationships, we estimated cointegrating vectors that are consistent with theoretical signs and magnitude.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/1247
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.14(2) (Summer 2001)
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