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The contribution of economic fundamentals to movements in exchange rates

journal contribution
posted on 2014-07-09, 08:53 authored by Nathan S. Balke, Jun Ma, Mark Wohar
Starting from the asset pricing approach of Engel and West, we examine the degree to which fundamentals can explain exchange rate fluctuations. We show that it is not possible to obtain sharp inferences about the relative contribution of fundamentals using only data on observed monetary fundamentals—money minus output differentials across countries—and exchange rates. We use additional data on interest rate and price differentials along with the implications of the monetary model of exchange rates to decompose exchange rate fluctuations. In general, we find that money demand shifts, along with observed monetary fundamentals, are an important contributor to exchange rate fluctuations.

History

School

  • Business and Economics

Department

  • Business

Citation

BALKE, N.S., MA, J,. and WOHAR, M.E., 2013. The contribution of economic fundamentals to movements in exchange rates. Journal of International Economics, 90, pp. 1 - 16

Publisher

© Elsevier B.V.

Version

  • VoR (Version of Record)

Publication date

2013

Notes

Closed access.

ISSN

0022-1996

Language

  • en