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A Neural Network Approach to Long-Run Exchange Rate Prediction

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  • Verkooijen, William

Abstract

In the economics literature on exchange rate determination, no theory has yet been found that performs well in out-of-sample prediction experiments. Until today, the simple random walk model has never been significantly outperformed. We have identified a set of fundamental long-run exchange rate models from literature that are well-known among economists. This paper investigates whether a neural network representation of these structural exchange rate models improves the out-of-sample prediction performance of the linear versions. Empirical results are reported in the case of the U.S. dollar-Deutsche Mark exchange rate. Citation Copyright 1996 by Kluwer Academic Publishers.

Suggested Citation

  • Verkooijen, William, 1996. "A Neural Network Approach to Long-Run Exchange Rate Prediction," Computational Economics, Springer;Society for Computational Economics, vol. 9(1), pages 51-65, February.
    • Handle: RePEc:kap:compec:v:9:y:1996:i:1:p:51-65
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    Cited by:

    1. Knobel, Alexander (Кнобель, Александр) & Kazaryan, Margarita (Казарян, Маргарита) & Kuznetsov, D.E. (Кузнецов, Д.Е.) & Sedalishchev, V.V. (Седалищев, В.В.) & Firanchuk, Alexander (Фиранчук, Александр), 2016. "Economic Benefits, Costs and Risks for Russia on Trade and Economic Alliances with Countries of CIS, Europe and the USA Contact [Экономические Выгоды, Издержки И Риски Для России От Торгово-Экономи," Working Papers 1854, Russian Presidential Academy of National Economy and Public Administration.
    2. Jing Yang & Nikola Gradojevic, 2006. "Non-linear, non-parametric, non-fundamental exchange rate forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(4), pages 227-245.
    3. Panda, Chakradhara & Narasimhan, V., 2007. "Forecasting exchange rate better with artificial neural network," Journal of Policy Modeling, Elsevier, vol. 29(2), pages 227-236.
    4. Nikola Gradojevic & Jing Yang, 2000. "The Application of Artificial Neural Networks to Exchange Rate Forecasting: The Role of Market Microstructure Variables," Staff Working Papers 00-23, Bank of Canada.

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