Monetary Models Of Dollar/Yen/Euro Nominal Exchange Rates: Dead Or Undead?  

Oleh:

Rogoff, Kenneth

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Economic Journal (EBSCO) vol. 109 no. 459 (Nov. 1999), page 655-659.
Topik: monetary; dollar; yen; euro; exchange rates
Fulltext: 655[1].pdf (77.65KB)

Isi artikel

In Meese and Rogoff (1983a), we argued that it is surprisingly dif®cult to explain systematically, much less predict, movements in major-currency nominal exchange rates. Using rolling regressions to estimate a variety of (then) state-of-the-art monetary exchange rate models, we found that, at horizons of up to one year, none could out-perform the predictions of a simple random walk model.1 Remarkably, this result obtained even when the predictions of the models were based on ex-post-realised values of the explanatory variables. In other words, the standard exchange rate models we estimated exhibited extremely poor out-of-sample ®t.2 At the time, these nihilistic results seemed quite radical, since there was widespread optimism about the potential of monetary models, especially sticky-price monetary models, to explain how ¯exible exchange rates function. After all, the main cornerstones of monetary exchange rate models were relatively noncontroversial: long-run purchasing power parity (or some variant of PPP), and a presumption that there is a strong long-run connection between money growth and in¯ation.

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