Exchange rate determination: monetary approach in the new EU members and Turkey

Abstract

This study is based on the evaluation of the long-run performance of the monetary model approach of exchange rate determination for the newly entered EU members and Turkey. First, we tested the cointegration relationship between exchange rates and monetary variables. Then, the forecast estimates of the monetary approach were used for comparing the performances with the random walk model.

Panel Analysis of Monetary Model of ASEAN-5 Exchange Rates

“…In other words, all statistics show the presence of a long -run relationship between the nominal exchange rates of ASEAN-5 countries and its monetary determinants which are relative money supply and relative real income. Therefore, consistent with Cerra and Saxena (2010), Uz and Ketenci (2010) and Dabrowski et al (2014), the current study is able to provide evidence supportive of the monetary model of exchange rate using panel data analysis for the case of ASEAN-5. Notes.…”

“…Moreover, panel data provides the foundation for aggregate analysis since time series analysis tends to yield less accurate if not misleading aggregate outcome (Hsiao, 2007). In this conjunction, a number of the most recent studies in exchange rate determinations that employed the panel technique found evidence that monetary model can predict exchange rate well (see Cerra and Saxena, 2010;Uz and Ketenci, 2010;Dabrowski et al, 2014). In particular, Dabrowski et al (2014) found that money supply, real income and price level could explain the exchange rate behavior for the Central and Eastern European Countries case using the panel data analysis.…”

Determinants of the real exchange rate in a small open economy: Evidence from Canada

“…Some studies use one or more fiscal variables as well as some macro variables in the determination of the real exchange rate (see, for example, Edwards, 1988;MacDonald, 1998;Canzoneri et al, 2003;Égert et al, 2006;Candelon et al, 2007;Kim and Roubini, 2008;Müller, 2008;Galstyan and Lane, 2009;Cayen et al, 2010;EttaNkwelle et al, 2010;Chowdhury, 2012). Furthermore, some studies ignored completely most or all of the fundamental macro variables, especially fiscal variables (for example, see Schlagenhauf and Wrase, 1995;Devereux, 1997;Kim, 2007;Morales-Zumaquero, 2006;Uz and Ketenci, 2010).…”

Causal relations between nominal exchange rates and monetary fundamentals in Central and Eastern European countries

“…Existing studies devoted to exchange rate determination in CEE countries focus on the issue of co‐integration between exchange rates and fundamentals (see, for example, Crespo‐Cuaresma et al ., ; Dąbrowski et al ., ; Uz and Ketenci, , ) . Unfortunately, co‐integration analysis does not reveal the direction of causality.…”