A rationale for macroeconomic policy coordination: Evidence based on the Spanish peseta

Abstract

In the present paper two types of monetary model for the determination of the peseta/DM exchange rate have been specified for the period 1980–1989. One includes the fundamental variables corresponding to the two countries concerned (Germany and Spain) and the other is an aggregate model, where the explanatory variables are the ratios between the fundamentals from the countries inside the ERM of the EMS, and the Spanish fundamentals. The empirical results show that the aggregate model has greater explanatory power, supporting (indirectly) further monetary policy coordination.