Fundamentals, forecast combinations and nominal exchange-rate predictability
AbstractThis paper investigates the out-predictability of fundamentals and forecast combinations. By adopting a panel-based specification, the paper obtains several interesting results. First, the Taylor-rule-based fundamental is the best among the four different fundamentals under consideration in out-of-sample contests. It provides strong evidence to out-predict the random walk over the PBW period. Second, relative to a single-equation prediction, panel predictions are generally able to enhance the statistical significance of beating the random walk. Third, combining forecasts from different fundamentals that have relatively strong out-predictability at a specific horizon does enhance both the statistical and economic significances of beating the random walk for the PBW period at short horizons.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 25 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/620165
Fundamentals; Forecast combinations; Random walks; Out-of-sample forecasts; Economic significance;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
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