Revision of Exchange-Rate Determination in the MCM



This paper presents the results of work in progress to revise the exchange-rate determination properties of the Federal Reserve Board’s Multi-Country Model (MCM). The MCM is a medium to large scale quarterly econometric model of five countries — the United States, Canada, Germany, Japan and the United Kingdom — as well as an abbreviated rest-of-world sector. The single country models vary in size from 200 to 300 behavioural equations and identities each, including fully developed domestic income and expenditure sectors, price and wage determination, money markets and international transactions sectors. Since the focus of the MCM is on international linkages, particular attention is paid to international transactions and exchange rates. Trade flows are determined bilaterally and service account and private and official capital flows multilaterally. Bilateral exchange rates for the dollar against the mark, yen, pound and Canadian dollar are determined endogenously.


Exchange Rate Current Account Real Exchange Rate Foreign Asset Monetary Shock 
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© Paul De Grauwe and Theo Peeters 1983

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