A problem with estimating the short-run monetary exchange rate model |
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| Affiliation: | 1. College of Educational Information Technology, South China Normal University, Guangzhou 510631, China;2. Center of Educational Information Technology, South China Normal University, Guangzhou 510631, China;1. DICATAM - Sez. Matematica, Università degli Studi di Brescia, Via Branze 43, I-25123 Brescia, Italy;2. Dipartimento di Scienze Matematiche, Fisiche e Informatiche, Università di Parma, Parco Area delle Scienze 53/A, I-43124 Parma, Italy;3. Dipartimento di Matematica e Fisica, Università Cattolica del Sacro Cuore, Via Musei 41, I-25121 Brescia, Italy;1. Instituto de Matemática Interdisciplinar and Depto. de Matemática Aplicada, Universidad Complutense de Madrid, Plaza de las Ciencias, 3, 28040 Madrid, Spain;2. Institute Jean Le Rond D’Alembert, Université Pierre et Marie Curie, 4, place Jussieu, 75005 Paris, France |
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| Abstract: | This paper shows that a composite moving average error is typically implied by a short-run monetary model of exchange rate. Thus, relying solely on the Durbin-Watson (DW) statistic as an indicator of serial correlation is inappropriate and may lead to inefficient coefficient estimates. We suggest that the time-series model technique of Box and Jenkins (1976) be used to identify an error model. The short-run monetary model of the exchange rate can then be estimated as a transfer function model by a maximum likelihood procedure. |
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