These notes draw from the Theory of Cointegration in orderto test the monetary model of exchange rate determination. Previous evidence shows that the monetary model does notcapture the short run dynamics of the exchange rate, specially when assessed in terms of forecasting accuracy. Even though the monetary equations of exchange ratedetermination may be bad indicators of how exchange ratesare determined in the short run, they couldstill describelong run equilibrium relationships between the exchange rateand its fundamentals. Stationary deviations from those longrun relationships are allowed in the short run. This bookalso addresses severalissues on Cointegration. Chapter 6studies the small sample distribution of the likelihoodratio test statistics (on the dimension and restrictions onthe cointegrating space) under deviations from normality. This monograph also focuses on the issue of optimalprediction in partially nonstationary multivariate timeseries models. In particular, it caries out an exchange rateprediction exercise. | The Monetary Model of Exchange Rates and Cointegration by Javier Gardeazabal, Paperback | Indigo Chapters