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

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Author Info
Yin-Wong Cheung
Menzie David Chinn
Antonio Garcia Pascual

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

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Length: 36 pages
Date of creation: 14 May 2004
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Handle: RePEc:imf:imfwpa:04/73

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

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References listed on IDEAS
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