Meese-Rogoff Redux: Micro-Based Exchange-Rate Forecasting
Abstract
This paper compares the true, ex-ante forecasting performance of a micro-based model against both a standard macro model and a random walk. In contrast to existing literature, which is focused on longer horizon forecasting, we examine forecasting over horizons from one day to one month (the one-month horizon being where micro and macro analysis begin to overlap). Over our 3-year forecasting sample, we find that the micro-based model consistently out-performs both the random walk and the macro model. Micro-based forecasts account for almost 16 per cent of the sample variance in monthly spot rate changes. These results provide a level of empirical validation as yet unattained by other models. Though our micro-based model out-performs the macro model, this does not imply that past macro analysis has overlooked key fundamentals: our structural interpretation using a fundamentals-based model shows that our findings are consistent with exchange rates being driven by standard fundamentals. Classification-JEL Codes:F3, F4, G1(This abstract was borrowed from another version of this item.)
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Bibliographic Info
Article provided by American Economic Association in its journal American Economic Review.
Volume (Year): 95 (2005)
Issue (Month): 2 (May)
Pages: 405-414
Note: DOI: 10.1257/000282805774669934
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Related research
Keywords:Other versions of this item:
- Martin D.D. Evans & Richard K. Lyons, 2005. "Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting," NBER Working Papers 11042, National Bureau of Economic Research, Inc.
- Martin D. D. Evans(Georgetown University and NBER) and Richard K. Lyons(U.C. Berkeley and NBER, Haas School of Business), 2005. "Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting," Working Papers gueconwpa~05-05-01, Georgetown University, Department of Economics.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- G1 - Financial Economics - - General Financial Markets
References
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