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International Monetary Fund
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
International Monetary Fund

-looking monetary model can be used to generate a dynamic error-correction exchange rate equation that has robust in-sample and out-of-sample properties and is superior to a random walk (the usual benchmark) in post-sample forecasting.

Mr. Ronald MacDonald and Mr. Mark P. Taylor

deutsche mark-U.S. dollar exchange rate during 1976-90, the paper demonstrates the following: First, the static monetary approach to the exchange rate is valid when it is considered as a long-run equilibrium condition. Second, when the exchange rate fundamentals suggested by the monetary model are assumed, the speculative bubbles hypothesis is rejected. Third, the full set of rational expectations restrictions imposed by the forward-looking monetary model is rejected. Fourth, the long-run estimate of the monetary model can be used to generate a dynamic error-correction

Mr. Ronald MacDonald and Mr. Mark P. Taylor

exchange rate has some validity when considered as a long-run equilibrium condition; second, that when the exchange rate fundamentals suggested by the monetary model are assumed, the speculative bubbles hypothesis is rejected; and third, that the full set of rational expectations restrictions imposed by the forward-looking monetary model are rejected. Finally, however, we demonstrate that the monetary model can be used to generate a dynamic error-correction exchange rate equation that has robust in-sample and out-of-sample properties—including beating a random walk

Mr. Ronald MacDonald and Mr. Mark P. Taylor

static monetary approach to the exchange rate has some validity when considered as a long-run equilibrium condition. Second, when the set of exchange rate fundamentals suggested by the monetary model are assumed, the speculative bubbles hypothesis is rejected. Thirdly, the full set of rational expectations restrictions imposed by the forward-looking monetary model are rejected. Finally, however, we demonstrate that the monetary model can be used to generate a dynamic error correction exchange rate equation which has robust in-sample and out-of-sample properties

International Monetary Fund. Research Dept.
The declines in economic activity experienced by Bulgaria, the Czech and Slovak Federal Republic, and Romania in the period since market-oriented reforms were initiated are analyzed. After reviewing developments in these three countries, the paper empirically investigates two questions that are central to an interpretation of the output decline. First, to what extent does the output fall reflect “structural change,” or a reallocation of resources across sectors, rather than a conventional macroeconomic recession? Second, to what extent have demand-side or supply-side forces been dominant in generating the output decline?