Macroeconomic Implications of Alternative Exchange Rate Models / John F. Helliwell, Paul M. Boothe.

Format:

Book

Author/Creator:

Helliwell, John F.

Contributor:

National Bureau of Economic Research.

Boothe, Paul Michael, 1954-

Series:

Working Paper Series (National Bureau of Economic Research) no. w0904.

NBER working paper series no. w0904

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1982.

Summary:

In this paper we estimate and compare several alternative exchange rate models that have received wide attention, but little comparison, during the 1970s. In order to compare purchasing power parity (PPP), nominal interest rate parity, real interest rate parity, and portfolio balance models, we first strip each down to its essential core and undertake comparable single-equation tests of both 'hard' and 'easy' (more and less constrained) versions of each model. We then embed each of the 'hard' versions in a new macroeconomic model of Canada, and assess their implications for the impacts of monetary and fiscal shocks. Using annual Canadian data from the 1950s and 1970s, all of the models have single-equation errors of about 3%, except for the 'hard' versions of PPP and real interest parity, which are heavily rejected by the data. In a macroeconomic context, the models have modestly different implications for the effects of fiscal shocks, and diverge more widely under monetary shocks.

Notes:

Print version record

June 1982.