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In Which Exchange Rate Models Do Forecasters Trust?

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  • Jaewoo Lee
  • H. Takizawa
  • David Hauner

Abstract

Using survey data of market expectations, we ask which popular exchange rate models appear to be consistent with expectation formation of market forecasters. Exchange rate expectations are found to be correlated with inflation differentials and productivity differentials, indicating that the relative PPP and Balassa-Samuelson effect are common inputs into expectation formation of market forecasters.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/116.

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Length: 17
Date of creation: 01 May 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/116

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Keywords: Economic forecasting; Exchange rates; Forecasting models; Interest rate differential; Purchasing power parity; exchange rate; inflation; inflation rate; exchange rate regime; foreign exchange; exchange rate expectations; exchange rate changes; current account balance; real exchange rate; exchange rate regimes; nominal exchange rate; exchange rate dynamics; monetary policy; currency risk; flexible exchange rate regime; nominal exchange rates; fixed exchange rate; flexible exchange rate; exchange rate determination; exchange rate economics; exchange rate forecasting; history of exchange rate; fixed exchange rate regime; foreign exchange rate; euro exchange rate; market exchange rate; exchange rate volatility; floating exchange rate regime; relative price; depreciating exchange rate; floating exchange rate; movements in exchange rates; average inflation; exchange rate appreciation; current exchange rate; exchange rate expectation; exchange rate change; fixed exchange rate regimes; lower inflation; currency markets; exchange rate movements; gdp deflator; foreign exchange market; real exchange rate dynamics; average inflation rate; exchange rate regime classification; exchange rate arrangements; fisher relation; nominal interest rate; nominal interest rates;

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  1. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  2. Tommaso Monacelli & Roberto Perotti, 2010. "Fiscal Policy, the Real Exchange Rate and Traded Goods," Economic Journal, Royal Economic Society, vol. 120(544), pages 437-461, 05.
  3. Charles Engel & Kenneth D. West, 2005. "Exchange Rates and Fundamentals," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 485-517, June.
  4. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  5. Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments," IMF Occasional Papers 261, International Monetary Fund.
  6. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  7. Cheung, Yin-Wong & Chinn, Menzie & Garcia Pascual, Antonio, 2003. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," Santa Cruz Department of Economics, Working Paper Series qt5fc508pt, Department of Economics, UC Santa Cruz.
  8. Jeffrey A. Frankel & Kenneth A. Froot, 1985. "Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations," NBER Working Papers 1672, National Bureau of Economic Research, Inc.
  9. Harald Hau & Hélène Rey, 2006. "Exchange Rates, Equity Prices, and Capital Flows," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 273-317.
  10. Lee,J. & Chinn,M.D., 2004. "Current account and real exchange rate dynamics in the G-7 countries," Working papers 11, Wisconsin Madison - Social Systems.
  11. Cheung, Yin-Wong & Chinn, Menzie David, 2001. "Currency traders and exchange rate dynamics: a survey of the US market," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 439-471, August.
  12. Frankel, Jeff & Froot, Ken, 1986. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," Department of Economics, Working Paper Series qt1972q8wm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  13. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," NBER Working Papers 4807, National Bureau of Economic Research, Inc.
  14. West, Kenneth D. & Edison, Hali J. & Cho, Dongchul, 1993. "A utility-based comparison of some models of exchange rate volatility," Journal of International Economics, Elsevier, vol. 35(1-2), pages 23-45, August.
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  1. Il ritorno del terrorismo
    by Alberto Bagnai in Goofynomics on 2012-05-15 20:52:00

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