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The failure of the monetary model of exchange rate determination



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Afat, Dinçer y Gómez-Puig, Marta y Sosvilla-Rivero, Simón (2015) The failure of the monetary model of exchange rate determination. [ Documentos de Economía y Finanzas Internacionales; nº 15-05, ISSN: 1696-6376 ]

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In this paper, we test three popular versions of the monetary model (flexible price, forward-looking and real interest differential models) for the OECD member countries by applying Johansen cointegration technique. Based on country-by-country analysis, we conclude that monetary models do not provide the expected results. We reveal several shortcomings of the models and examine the building blocks of the fundamental version. Although researchers always blame the deviations from purchasing power parity as the reason for the failure of the monetary model, our analysis indicates that invalidity of Keynesian money demand function is also responsible for unfavourable results.

Tipo de documento:Documento de trabajo o Informe técnico
Palabras clave:Exchange rate; Flexible price monetary model; Forward-looking monetary model; Real interest differential model; Money demand; Purchasing power parity
Materias:Ciencias Sociales > Economía > Econometría
Ciencias Sociales > Economía > Economía internacional
Ciencias Sociales > Economía > Finanzas
JEL:F31, F41
Título de serie o colección:Documentos de Economía y Finanzas Internacionales
Código ID:30611
Depositado:22 Jun 2015 11:45
Última Modificación:19 Dic 2018 09:59

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