Belke, Ansgar; Beckmann, Joscha; Dobnik, Frauke:
Cross-Section Dependence and the Monetary Exchange Rate Model-A Panel Analysis
2011
In: DIW Diskussionspapiere = Discussion Papers / Deutsches Institut für Wirtschaftsforschung, Heft 1109, S. 1 - 28
Artikel/Aufsatz in Zeitschrift2011Wirtschaftswissenschaften
Fakultät für Wirtschaftswissenschaften » Fachgebiet Volkswirtschaftslehre » Makroökonomik
Titel:
Cross-Section Dependence and the Monetary Exchange Rate Model-A Panel Analysis
Autor(in):
Belke, AnsgarLSF; Beckmann, JoschaLSF; Dobnik, Frauke
Erscheinungsjahr
2011
WWW URL

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 coecients of income and money are in line with the suggestions of the monetary model.