Abstract
The Monetary Exchange Rate Model in the Long Run: An Empirical Investigation. — This paper uses the Johansen multivariate cointegration method to examine three variants of the monetary approach to the long-run exchange rate model: flexible price, forward-looking and sticky price monetary models. Evidence is provided for four bilateral sterling exchange rates. The sensitivity of the results to the measurement of monetary aggregates is also examined. The cointegration results provide dismal evidence for the flexible price and forward-looking models irrespective of the measurement of money. The findings are more mixed for the sticky price model, particularly when broad money is used.
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