On the predictive power of monetary exchange rate model: the case of the Malaysian Ringgit/US Dollar rate.
The predictive power of the monetary model for the Malaysian ringgit/US dollar (RM/USD) rate is analysed using quarterly data ending in 2006:Q3. We find compelling evidence of a long-run relationship between exchange rates and the economic fundamental determinant. Macroeconomic factors systematical...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English English |
| Published: |
Taylor & Francis
2009
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| Online Access: | http://psasir.upm.edu.my/id/eprint/15926/1/On%20the%20predictive%20power%20of%20monetary%20exchange%20rate%20model.pdf http://psasir.upm.edu.my/id/eprint/15926/ |
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| Summary: | The predictive power of the monetary model for the Malaysian ringgit/US dollar (RM/USD) rate is analysed using quarterly data ending in 2006:Q3. We find compelling evidence of a long-run relationship between exchange
rates and the economic fundamental determinant. Macroeconomic factors systematically affect the long-run movement of the RM/USD rate. Additionally, the RM/USD rate was overvalued by about 10% severalquarters before the 1997 crisis; after the crisis, rates fluctuated close to the equilibrium value. The out-of-sample forecasts demonstrate that the monetary model outperforms the naı¨ve random walk model. The monetary and Purchasing Power Parity (PPP) models do well at the four to eight quarters horizon. |
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