Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 14, No. 2, pp.169-182
ISSN: 1225-0279 (Print)
Print publication date 31 May 2001
Received 20 Nov 2000 Revised 06 Dec 2001

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

Byung Chul Ahn ; Keun-Yeob Oh
Associate Professor, School of Economics and Finance, Yeungnam University, 214-1 Daedong, Kyungsan, Kyungbuk 712-749, Korea, Tel: +82-53-810-2726, Fax: +82-53-812-5321
Associate Professor, Department of International Management, Chungnam University, Tae-Jeon City 305-764, Korea, Tel: +82-42-821-5560, Fax: +82-42-823-5359

JEL Classification: F31


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.


Monetary model, Panel cointegration


We are grateful for helpful suggestions by anonymous referees.


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