AN EMPIRICAL ANALYSIS OF THE MONETARY APPROACH TO THE DETERMINATION OF THE EXCHANGE RATE
Graduate School of Industrial Administrationand Carnegie-Mellon Institute of Research
This paper develops tests of the monetary approach to the determination of exchange rates using data from the flexible exchange-rate period which followed the collapse of the Bretton Woods fixed-parity system. Two types of time-series models are analysed to test several aspects of the theory.
As usually formulated, the monetary approach stresses that the exchange rate, as the relative price of two monies, is determined by the equilibrium between the demands for and the supplies of the stocks of monies outstanding.1 This follows ...