Abstract
This study re-examines the real interest differential model of exchange rate determination. Based on the " bottom-up" modelling strategy, the results of this empirical study using data set that includes Canada, France, Germany, Japan, Italy, the United Kingdom, and the United States support the view that first, there is a cointegration relationship between bilateral exchange rates and bilateral macroeconomic variables and second, there is existence of stable money demand function. Moreover, the short-run dynamics exchange rate model can outperform the random walk within 12-month forecast in terms of both assurance and direction predictability.