The monetary model of exchanges rates and cointegration. Estimation, testing and prediction (Q1311460): Difference between revisions

This monograph is a merger of the authors' two dissertations presented in 1991 at the University of Pennsylvania. Their work is based on the theory of cointegration which is used to test the monetary model of exchange rate determination. The analysis is empirical, but several issues concerning the theory of cointegration are also addressed. The main ingredients are: In chapter 2 several versions of the monetary model are described. In chapter 3 nonstationary character of the variables in the model is explored, and in chapter 4 the model is tested within the framework of the theory of cointegration (Johansen; 1988, 1991). Chapter 5 studies the short run dynamics of the exchange rate, and chapter 6 studies the small sample distribution of the LR test used under deviations of normality. In chapter 7 two different interpretations of the time series model and several estimation procedures are given, and in chapter 8 properties of forecasts based on cointegrated systems are studied. Chapter 9 deals with nominal exchange rate prediction using a VAR-model, where estimation is carried out under different assumptions regarding the long and short run parameters. In chapter 10 the small sample properties of the forecasts generated by a cointegrated system is studied. Some conclusions are drawn in the final chapter 11.