Title: The monetary model of exchange rate determination: the case of Greece (1974–1994)

Authors: Aristidis Bitzenis, John Marangos

Addresses: International and European Economic and Political Studies, University of Macedonia, 156 Egnatia street, 540 06 Thessaloniki, Greece. ' Department of Economics, Colorado State University, 1771 Campus Delivery, Fort Collins, CO 80523-1771, USA

Abstract: The flexible-price monetary model is examined for the Greek drachma-US dollar exchange rate. The Johansen multivariate technique of co-integration is applied to an unrestricted form of the monetary model. Using quarterly data covering the period 1974–1994, strong evidence is found in favour of the existence of co-integration between the nominal exchange rate, relative money supply, relative income and relative interest rates. The monetary model is validated as a long-run equilibrium condition.

Keywords: Greece; monetary models; exchange rate determination; flexible prices; Greek drachma; co-integration; nominal exchange rate; relative money supply; relative income; relative interest rates.

DOI: 10.1504/IJMEF.2007.016026

International Journal of Monetary Economics and Finance, 2007 Vol.1 No.1, pp.57 - 88

Published online: 02 Dec 2007 *

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