Taylor rules and the Canadian–US equilibrium exchange rate

An Empirical Evidence of Misalignment Exchange Rate in Malaysia Using Beer Model

“…In other words, the bilateral spot exchange rate should be equal to the ratio of the general price levels of the two countries. However, the previous study argued that these theory is a very crude model and unable to predict well especially in the shortrun (Lee, 2005;Chin, 2005;Clark & MacDonald, 1999;Cline & Williamson, 2008;Berger & Kempa, 2012). Furthermore, the PPP/LOP models do not take into account the real factors such as net assets levels and balance of payments positions which makes it difficult to adopt this models.…”

“…Another concern that the PPP/LOP models cannot indicate real competitiveness due to productivity gaps which creates price gaps between emerging and developed countries. Secondly, many studies provide evidence that the macroeconomic fundamental factors such as term of trade (Naseem et al, 2008;Kębłowski & Welfe, 2010;Balázs & Amina, 2003), trade liberalization (Maeso-Fernandez et al, 2006;Balázs & Amina, 2003), real interest rate (Lee, 2005;Naseem et al, 2008;Chin, 2005;Berger & Kempa, 2012), productivity differential (Naseem et al, 2008;Bénassy-Quéré et al, 2011;Mohd Sidek & Yusoff, 2009), net foreign assets (Bénassy-Quéré et al, 2011;López-Villavicencio, 2006;Sahminan, 2005) and government spending (Naseem et al, 2008;Maeso-Fernandez et al, 2006;Mohd Sidek & Yusoff, 2009) might influence the equilibrium exchange rate, rather than price level. Figure 2 clearly indicates that there are upward trends (correlation) in all macroeconomics fundamental variables except government spending.…”

Possible effects of domestic and foreign factors on monetary policy implementation in Turkey: a DSGE-VAR approach

“…The original Taylor rule has also been modified so as to include additional variables such as changes in asset prices (Belke & Polleit, 2007;Bernanke & Gertler, 1999;Botzen & Marey, 2010;Cecchetti, Genberg, Lipsky, & Wadhwani, 2000;Clarida, Gali, & Gertler, 1998;Fernandez, Koenig, & Nikolsko-Rzhevskyy, 2010;Fuhrer & Tootell, 2008;Hoffmann, 2013;Rigobon & Sack, 2003;Smets, 1997), variations in long-term interest rates (Clarida, Gali, & Gertler, 1998Goodfriend, 1998;Jones & Kulish, 2013;Smets, 1997;Yüksel, Metin-Ozcan, & Hatipoglu, 2013) and exchange rates (Ball, 1999(Ball, , 2000Berger & Kempa, 2012;Chen & Chou, 2012;Engel & West, 2006;Galí & Monacelli, 2005;Galimberti & Moura, 2013;Hoffmann, 2013;Kempa & Wilde, 2011;Lubik & Schorfheide, 2007;Molodtsova, Nikolsko-Rzhevskyy, & Papell, 2008;Molodtsova & Papell, 2009;Svensson, 2000;Taylor, 2001;Wilde, 2012), among others, into the monetary reaction functions so as to provide a wider explanation to movements in interest rates. On the other hand, this framework may still lack the ability to capture the dynamics of shortterm interest rates relating to the accelerating process of globalisation and openness to external shocks which confronted central banks with challenging economic conditions.…”