S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics Seoul Journal of Economics vol.14(2) (Summer 2001)
Is the Monetary Model Useful in Explaining Exchange Rates? - Panel Cointegration Evidence
- Ahn, ByungChul; Oh, KeunYeob
- Issue Date
- Seoul Journal of Economics, Vol.14 No.2, pp. 169-182
- 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.