Application of Monetary Models of Exchange Rate Determination for Poland

Abstract

The zloty/USD exchange rate is examined based on the Dornbusch model, the Bilson model, the Frenkel model, and the Frankel model. Empirical results show that the coefficient of the relative money supply is positive and significant, that the coefficient of the relative output is negative and significant, and that the Bilson model or the Frenkel model applies to Poland. Hence, the nominal exchange rate is positively affected by the relative interest rate and the relative expected inflation rate. The Balassa-Samuelson effect is confirmed in both models. The Bilson model has a smaller root mean squared error or mean absolute percent error than the Frenkel model. © 2008, Versita. All rights reserved.