Exchange Rate Modelling

Are foreign exchange markets efficient? Are fundamentals important for predicting exchange rate movements? What is the signal-to-ratio of high frequency exchange rate changes? Is it possible to define a measure of the equilibrium exchange rate that is useful from an assessment perspective? The book is a selective survey of current thinking on key topics in exchange rate economics, supplemented throughout by new empirical evidence. The focus is on the use of advanced econometric tools to find answers to these and other questions which are important to practitioners, policy-makers and academic economists. In addition, the book addresses more technical econometric considerations such as the importance of the choice between single-equation and system-wide approaches to modelling the exchange rate, and the reduced form versus structural equation problems. Readers will gain both a comprehensive overview of the way macroeconomists approach exchange rate modelling, and an understanding of how advanced techniques can help them explain and predict the behavior of this crucial economic variable. Front Matter....Pages i-xii Introduction....Pages 1-7 Spot and Forward Market Relationships....Pages 9-48 Purchasing Power Parity: Long and Short-Run Testing....Pages 49-77 The Monetary Approach to Exchange Rate Modelling....Pages 79-109 Modelling Departures from Purchasing Power Parity....Pages 111-143 High Frequency Exchange Rate Modelling....Pages 145-171 Long-Run Econometric Modelling of Exchange Rates....Pages 173-206 Conclusion....Pages 207-209 Back Matter....Pages 211-222