Long run Exchange Rate Determination I

International Monetary Theory postulates a number of relationships among macroeconomic variables of different countries. Examples are, absolute and relative Purchasing Power Parity (PPP), Real Interest rate Parity (RIP), Uncovered Interest Parity (UIP) and (forward) foreign exchange market efficiency. These international linkages are at the basis of the economic modeling of open economies, in particular, monetary models of exchange rate determination, despite the fact that many authors have found empirical evidence against them.