2009), “Panel cointegration and the monetary exchange rate model”, Economic Modelling 26

This paper re-examines the validity of the monetary exchange rate model during the post-Bretton Woods era for 18 OECD countries. Our analysis simultaneously considers the presence of both cross-sectional dependence and multiple structural breaks, which have not received much attention in previous studies of the monetary model. The empiri-cal results indicate that the monetary model emerges only when the presence of structural breaks and cross-country dependence has been taken into account. Evidence is also pro-vided suggesting that the breaks in the monetary model can be derived from the underlying purchasing power parity relation. JEL Classification: C32; C33; F31; F41