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Asset Market and Balance of Payments Characteristics: An Eclectic Exchange Rate Model for the Dollar, Mark, and Yen
Author:
Mr. Ronald MacDonaldnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 1995: Issue 055
Language:
English
Publication Date:
01 Jun 1995
DOI:
https://doi.org/10.5089/9781451847581.001
ISBN:
9781451847581
ISSN:
1018-5941
Pages:
38
Keywords:
WP; mn mathvariant; U.S. dollar; correlation coefficient; balance of payments; modeling exercise; price configuration; price level; excess demand; nominal exchange rate movement; exchange rate depreciation; asset market approach; parsimonious exchange rate model; short-run exchange rate change; time series; critical value; Exchange rates; Purchasing power parity; Exchange rate modelling; Real exchange rates; Exchange rate assessments
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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In this paper we use an exchange rate model that combines asset market characteristics with balance of payments interactions to examine the nominal effective exchange rates of the German mark, Japanese yen, and U.S. dollar for the recent experience with floating exchange rates. Our approach may be interpreted as one which attempts to flesh out the missing links that arise in conditioning an exchange rate solely on relative prices, as occurs in a standard PPP analysis. In contrast to much other empirical exchange rate modeling, our approach explicitly involves the use of a current account sustainability term. Amongst the findings reported in this paper are: significant, and sensible, long-run relationships for all of the currencies studied; appealing short-run dynamics for two of the currencies; and a finding that the Japanese effective exchange rate closely tracks the long-run exchange rate defined in this paper.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1995: Issue 055