Empirical Economics

, Volume 10, Issue 3, pp 163–175 | Cite as

Buffer stocks, exchange rates and deviations from purchasing power parity

  • R. MacDonald


In this paper an extension of the Monetary Approach to the Exchange Rate reduced form is presented and estimated for four bilateral exchange rates with data from the recent floating experience. The extension incorporates two features: a more sophisticated modelling of money demand, using theCarr andDarby money demand specification, and allowing for deviations from purchasing power parity. The estimated results are supportive of our extended specification and we conclude by arguing that care should be taken in specifying the underlying structural relationships in asset reduced form exchange rate equations.


Exchange Rate Economic Theory Rate Equation Structural Relationship Power Parity 
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Copyright information

© Physica-Verlag 1985

Authors and Affiliations

  • R. MacDonald
    • 1
  1. 1.Department of Political EconomyUniversity of AberdeenAberdeen

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