Does 'news' approach outperform monetary model in exchange rate determination?

This thesis aims to contribute in the field of exchange rate determination. Firstly, it sums results of previous studies (theoretical as well as empirical ones). Consequently, it investigates two approaches to exchange rate determination, and compares their theoretical and empirical performance. Firstly, monetary model is introduced, and secondly 'news' model is presented. Since 'news' model incorporates rational expectations and considers interest rate endogenous, it is expected to give better results in comparison with monetary model. Six exchange rates were chosen for the empirical analysis. They are analyzed in period July 2000 -- June 2012. As expected, 'news' model outperforms monetary model. However, since the volatility of exchange rate is much bigger in reality than both of the models are able to explain, neither of the models can be considered as satisfactory. It is the same result which has been presented in older studies that investigated these models