Table of Contents
Economics Research International
Volume 2014, Article ID 746956, 14 pages
Research Article

Exchange Rates and Monetary Fundamentals: What Do We Learn from Linear and Nonlinear Regressions?

1Adam Smith Business School, University of Glasgow, Glasgow G12 8QQ, UK
2GREQAM, School of Economics, Aix-Marseille University, 13236 Marseille, France

Received 27 June 2014; Revised 10 August 2014; Accepted 10 August 2014; Published 9 September 2014

Academic Editor: João Ricardo Faria

Copyright © 2014 Guangfeng Zhang. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


This paper revisits the association between exchange rates and monetary fundamentals with the focus on both linear and nonlinear approaches. With the monthly data of Euro/US dollar and Japanese yen/US dollar, our linear analysis demonstrates the monetary model is a long-run description of exchange rate movements, and our nonlinear modelling suggests the error correction model describes the short-run adjustment of deviations of exchange rates, and monetary fundamentals are capable of explaining exchange rate dynamics under an unrestricted framework.