We estimate a multivariate unobserved components-stochastic volatility model to explain the dynamics of a panel of six exchange rates against the US Dollar. The empirical model is based on the assumption that both countries' monetary policy strategies may be well described by Taylor rules with a...

The Dornbusch-Frankel monetary model is used to estimate the out-of-sample forecasting performance for the U.S. or Canadian dollar exchange rate. By using Johansen's multivariate cointegration, up to three cointegrating vectors were found between the exchange rate and macroeconomic fundamentals....

We utilize Monte Carlo simulations to evaluate, in finite samples, the forecasting performance of the monetary model. The data generating process (DGP) is based on the assumptions of Engel and West (2005) about the present-value model for exchange rates, namely that the discount factor is close...