Structural Models vs Random Walk: The Case of the Lira/$ Exchange Rate
AbstractAfter presenting the structural models of exchange-rate determination, the authors show that their out-of-sample predictive performance of the lira/$ exchange rate is inferior to that of the random walk model. Only by moving away from these single-equation, semireduced form models toward suitable economywide macroeconometric models can one hope to beat the random walk. Following this course, the authors show that the Mark V version of their continuous time macroeconometric model of the Italian economy outperforms both the existing structural models and the random-walk process in out-of-sample forecasting tests of the lira/$ exchange rate.
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Bibliographic InfoArticle provided by Eastern Economic Association in its journal Eastern Economic Journal.
Volume (Year): 16 (1990)
Issue (Month): 2 (Apr-Jun)
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- Bilson, John F O, 1978. "The Current Experience with Floating Exchange Rates: An Appraisal of the Monetary Approach," American Economic Review, American Economic Association, American Economic Association, vol. 68(2), pages 392-97, May.
- Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, Elsevier, vol. 14(1-2), pages 3-24, February.
- Somanath, V. S., 1986. "Efficient exchange rate forecasts: Lagged models better than the random walk," Journal of International Money and Finance, Elsevier, Elsevier, vol. 5(2), pages 195-220, June.
- Peter Isard, 1987. "Lessons from Empirical Models of Exchange Rates (Enseignements tirÃ©s des modÃ¨les empiriques de comportement des taux de change) (EnseÃ±anzas que nos brindan los modelos empÃricos de tipos d," IMF Staff Papers, Palgrave Macmillan, vol. 34(1), pages 1-28, March.
- Reinhold Heinlein & Hans-Martin Krolzig, 2011. "Effects of monetary policy on the $/£ exchange rate. Is there a 'delayed overshooting puzzle'?," Studies in Economics, Department of Economics, University of Kent 1124, Department of Economics, University of Kent.
- Manish KUMAR, 2009. "Exploiting The Information Of Stock Market To Forecast Exchange Rate Movements," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 56, pages 563-575, November.
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