ABSTRACT
In this chapter we consider the empirical evidence on variants of the monetary model, considered in previous chapters, and specifically, evidence on the floating exchange rate variant of the monetary model. Other evidence on the monetary model, in terms of its role in explaining, for example, speculative attacks against currencies and the behaviour of exchange rates in target zones are considered in other chapters. Although the bulk of the empirical evidence considered in this chapter relates to the recent (i.e. post-Bretton Woods) regime, evidence for the inter-war experience with floating rates shall also be discussed. The outline of the remainder of the chapter is as follows. In the next section we sketch the basic reduced forms that have become workhorses for estimating the monetary model and the so-called early estimates of the model (these relate to the period immediately after the inception of the post-Bretton Woods regime, especially the 1970s and early 1980s) and then go on in Section 6.2 to consider the so-called early estimates of the model; we include in these early estimates the seminal Meese and Rogoff (1983) out-of-sample forecasting paper. More recent work on out-of-sample forecasting and empirical estimates of the monetary model which rely on cointegration-based methods are considered in Section 6.3. Estimates of the forward-looking monetary model are presented in Section 6.4. Empirical evidence on issues of intra and inter-regime volatility are considered in Section 6.5.
