1. Testing the Monetary Model of Exchange Rate Determination: New Evidence from a Century of Data:
   (Sections 1-3):

Through the use of 14 industrialised countries spanning the late 19th or early 20th century to the last 20th century they test the long-run monetary model of exchange rate determination. They find a simple model may be appropriate to demonstrate the long-term monetary model in over half of the countries they consider.

They estimate vector error-correction models to investigate the adjustment process to the long-run monetary equilibrium.

Section 1: Introduction

Monetary Model of Exchange rate Determination: country's price level is determined by its supply and demand for money that the price level in different countries should be the same when expressed in the same cuurency. 

Of course, an attractive theoretical tool for understanding fluctuations in exchange rates over time. It also provides a long benchmark for the nominal exchange between two currencies and thus a clear criterion for determining whether a currency is significantly "overvalued" or "undervalued".

The Model did not escape the Meese & Rogoff (1983) trap that seemingly ensnared all models of exchange rate determination. In their paper, they find that a naive random walk model outperforms an array of structural models, including those based on monetary fundamentals, in predicting US dollar exchange rates pf up to 12 months during the late 1970s and early 1980s. The lack of empirical evidence for a stable long-run relationship among nominal exchange rates and monetary fundamentals renders the monetary model a seemingly plausible theoretical model with little practical relevance.