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Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting Author info | Abstract | Publisher info | Download info | Related research | Statistics Martin D. D. Evans(Georgetown University and NBER) and Richard K. Lyons(U.C. Berkeley and NBER, Haas School of Business) () (Department of Economics, Georgetown University )
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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
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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number
gueconwpa~05-05-01.
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Handle: RePEc:geo:guwopa:gueconwpa~05-05-01Contact details of provider: Postal: Georgetown University Department of Economics Washington, DC 20057-1036 Phone: 202-687-6074 Fax: 202-687-6102 Email: Web page: http://econ.georgetown.edu/
Order Information: Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036 Email: Web: http://econ.georgetown.edu/
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Keywords: Exchange rates forecasting Meese and Rogoff microstructure order flow Other versions of this item:
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