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Can Political Variables Really Predict Exchange Rate Movements?

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Abstract

This paper argues that Blomberg and Hess's ({\it Journal of International Economics 1997}) finding that political variables can be used to predict exchange rate movements better than the random walk model must be seen in the context of the decade and half of previous research which failed to beat this benchmark. This paper uses White's ``Reality Check'' methodology to test whether political variables remain as significant predictors of the exchange rate when a host of alternative competing models are taken into account. It finds that they do not. JEL Classification Numbers: F31, G12, H8.

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File URL: http://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe9911.pdf
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Paper provided by Department of Economics, Royal Holloway University of London in its series Royal Holloway, University of London: Discussion Papers in Economics with number 99/11.

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Length: 18 pages
Date of creation: Feb 2000
Date of revision: Feb 2000
Handle: RePEc:hol:holodi:9911

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Keywords: Exchange Rates; Forecasting;

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