On the dynamic relationship of exchange rates and monetary fundamentals: An impulse-response analysis by local projections

Tsung Wu Ho

doi:10.1080/13504850600993689

On the dynamic relationship of exchange rates and monetary fundamentals: An impulse-response analysis by local projections

Tsung Wu Ho^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

Meese and Rogoff (1983) first examined the dynamic relationship between exchange rates and monetary fundamentals and indicated that monetary fundamentals do not contain predictive component of exchange rates changes at short horizon. This note re-examines this relationship by estimating the local projections (Jorda, 2005) to calculate the responses of the exchange rate to monetary fundamental impulse. As a result, we confirm the dynamic relationship: Evidence from both cubic and linear projections show that monetary fundamentals contain information of future exchange rate changes.

Original language	English
Pages (from-to)	1141-1145
Number of pages	5
Journal	Applied Economics Letters
Volume	15
Issue number	14
DOIs	https://doi.org/10.1080/13504850600993689
Publication status	Published - 2008
Externally published	Yes

ASJC Scopus subject areas

Economics and Econometrics

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10.1080/13504850600993689

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abstract = "Meese and Rogoff (1983) first examined the dynamic relationship between exchange rates and monetary fundamentals and indicated that monetary fundamentals do not contain predictive component of exchange rates changes at short horizon. This note re-examines this relationship by estimating the local projections (Jorda, 2005) to calculate the responses of the exchange rate to monetary fundamental impulse. As a result, we confirm the dynamic relationship: Evidence from both cubic and linear projections show that monetary fundamentals contain information of future exchange rate changes.",

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AB - Meese and Rogoff (1983) first examined the dynamic relationship between exchange rates and monetary fundamentals and indicated that monetary fundamentals do not contain predictive component of exchange rates changes at short horizon. This note re-examines this relationship by estimating the local projections (Jorda, 2005) to calculate the responses of the exchange rate to monetary fundamental impulse. As a result, we confirm the dynamic relationship: Evidence from both cubic and linear projections show that monetary fundamentals contain information of future exchange rate changes.

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On the dynamic relationship of exchange rates and monetary fundamentals: An impulse-response analysis by local projections

Abstract

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