Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88209
Authors: 
Beckmann, Joscha
Belke, Ansgar
Dobnik, Frauke
Year of Publication: 
2011
Series/Report no.: 
ROME Discussion Paper Series 11-03
Abstract: 
This paper tackles the issue of cross-section dependence for the monetary exchange rate model in the presence of unobserved common factors using panel data from 1973 until 2007 for 19 OECD countries. Applying a principal component analysis we distinguish between common factors and idiosyncratic components and determine whether non-stationarity stems from international or national stochastic trends. We find evidence for a cross-section cointegration relationship between the exchange rates and fundamentals which is driven by those common international trends. In addition, the estimated coefficients of income and money are in line with the suggestions of the monetary model.
Subjects: 
Monetary exchange rate model
common factors
panel data
cointegration
vector error-correction models
JEL: 
C32
C23
F31
F41
Document Type: 
Working Paper

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