Open AccessTHE DOLLAR/EURO EXCHANGE RATE AND A COMPARISON OF MAJOR MODELS
Author(s) -
Yu Hsing,
Bruno S. Sergi
Publication year - 2009
Publication title -
journal of business economics and management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.485
H-Index - 37
eISSN - 1611-1699
pISSN - 2029-4433
DOI - 10.3846/1611-1699.2009.10.199-205
Subject(s) - exchange rate , economics , liberian dollar , us dollar , econometrics , mean absolute percentage error , statistics , monetary economics , mathematics , mean squared error , finance
This article analyzes the behaviour of the USD/EUR exchange rate based on four major models. Using the mean absolute percent error (MAPE) as a criterion, the extended Mundell‐Fleming model performs best, followed by the PPP model using the relative PPI, the monetary model, the PPP model using the relative CPI, and the UIP model. The widely used log‐log form in the PPP model based on the relative PPI or CPI can be rejected at the 5% level. The insignificant coefficients or unexpected signs of some variables in the monetary and other models may pose some challenges in applications.