Panel cointegration analysis to exchange rate determination : monetary model versus Taylor rule model
Author
Kutlu, Vesile
Advisor
Özcan, Kıvılcım Metin
Date
2009Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
35
views
views
7
downloads
downloads
Metadata
Show full item recordAbstract
This thesis examines the validity of the monetary model and the Taylorrule
model in determining exchange rates in the long run. The monetary model
and the Taylor-rule model are tested using the US dollar exchange rates over
1980:01-2007:04 periods for 13 industrialized countries. Johansen Fisher Panel
cointegration technique provides evidence that there exist a unique cointegration
relationship between the nominal exchange rates and a set of fundamentals
implied by the monetary model and the Taylor rule model. The cointegrating
coefficient estimates for the monetary model and the Taylor rule model are
found by using panel dynamic ordinary least square (DOLS) estimator. The
estimation results show that the effects of the monetary and the Taylor rule
fundamentals on exchange rates are not the same as what the theory suggests.
Overall, the findings of this thesis imply that there is no support for the
monetary model and there is little support for Taylor-rule model in explaining
exchange rates.