Formulation and Estimation of a Dynamic Model of Exchange Rate Determination: An Application of General Method of Moments Techniques

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Abstract
The advent of floating exchange rates in 1973 has resulted in a proliferation of papers aimed at formulating and estimating models of spot exchange rate determination. Few of these models have been estimated with techniques that explicitly utilize the identifying restrictions imposed by the assumption of rational expectations. Moreover, those authors who have estimated their models subject to these restrictions have explicitly or implicitly made strong assumptions about (a) the exogeneity of the "forcing" variables and (b) the serial correlation properties of reduced form error terms.

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