Working Paper: NBER ID: w2102
Authors: Kenneth D. West
Abstract: This paper uses a novel teat to see whether the Herse (1985) and Woo (1985) models are consistent with the variability of the deutschemark - dollar exchange rate 1974-1984. The answer, perhaps surprisingly, is yes. Both models, however, explain the month to month variability as resulting in a critical way from unobservable shocks to money demand and purchasing power parity. It would therefore be of interest in future work to model one or both of these shocks as explicit functions of economic variables.
Keywords: monetary models; exchange rates; money demand; purchasing power parity
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of shocks (D52) | models fail to explain variability (C29) |
| shocks in money demand and purchasing power parity (F31) | Deutschemark-Dollar exchange rate fluctuations (F31) |
| monetary models (E19) | Deutschemark-Dollar exchange rate variability (F31) |