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Some Evidenceon Exchange Rate Determination in Major Industrial Countries
Author:
Ms. Yan M Sun
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and
Mr. R. B. Johnston
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Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 098
Language:
English
Publication Date:
01 Aug 1997
DOI:
https://doi.org/10.5089/9781451852103.001
ISBN:
9781451852103
ISSN:
1018-5941
Pages:
38
Keywords:
WP; exchange rate movement; inferring exchange rate misalignment; U.S. dollar exchange rate; excess demand; single-equation estimate; Exchange rates; Current account balance; Exchange rate arrangements; Currency markets; Inflation
Legal-disclaimer:
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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This paper examines the role of long-run monetary and cyclical factors in determining exchange rate movements. Results of empirical study using a data set that includes Canada, Germany, Japan, the United Kingdom, and the United States support the view that exchange rate movements can be explained by the efficient or rational adjustment of foreign exchange markets to economic fundamentals. In the long run, the exchange rate is determined consistent with a monetary approach to exchange rates, while cyclical factors have an impact on short-run exchange rate dynamics. Estimated equations outperform random walk models of exchange rates.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund