The monetary approach to the exchange rate: an empirical look at the relationship between the Uk and the Us

Using data from 1982 to 2017 for the UK and the US and using a co-integrated SVAR model,this study finds some evidence of the applicability of the Monetary Approach to the ExchangeRate in a long-run setting, although not being able to find such a strong relationship in the short-run. The model also finds some encouraging results when used in a forecasting exercise andcompared to a random-walk. Furthermore, the application of restrictions for a forward-lookingvariant to the monetary approach is also tested, albeit the results show the non-applicability ofsaid restrictions