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Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?

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  • Yin-Wong Cheung
  • Antonio Garcia Pascual
  • Menzie David Chinn

Abstract

We reassess exchange rate prediction using a wider set of models that have been proposed in the last decade. The performance of these models is compared against two reference specifications-purchasing power parity and the sticky-price monetary model. The models are estimated in first-difference and error-correction specifications, and model performance is evaluated at forecast horizons of 1, 4, and 20 quarters, using the mean squared error, direction of change metrics, and the "consistency" test of Cheung and Chinn (1998). Overall, model/specification/currency combinations that work well in one period do not necessarily work well in another period.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/73.

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Length: 37
Date of creation: 01 Apr 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/73

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Keywords: Exchange rates; Productivity; Purchasing power parity; Monetary measures; Interest rates; Forecasting models;

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