Forecasting Exchange Rates of Major Currencies with Long Maturity Forward Rates
AbstractThis paper shows that error correction models assuming that long-maturity forward rates are stationary outperform the random walk in out of sample forecasting at forecasting horizons mostly above one year, for US dollar exchange rates against nine industrial countries’ currencies, using the 1990-2006 period for evaluating the out of sample forecasts. The improvement in forecast accuracy of our models is economically significant for most of the exchange rate series, and statistically significant according to a bootstrap test. Our results are robust to the specification of the error correction model and to the underlying data frequency.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest in its series Working Papers with number 0705.
Length: 47 pages
Date of creation: 18 May 2007
Date of revision:
bootstrap; forecasting performance; out of sample; random walk; VECM;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-26 (All new papers)
- NEP-CBA-2007-05-26 (Central Banking)
- NEP-ECM-2007-05-26 (Econometrics)
- NEP-FOR-2007-05-26 (Forecasting)
- NEP-IFN-2007-05-26 (International Finance)
- NEP-MAC-2007-05-26 (Macroeconomics)
- NEP-MON-2007-05-26 (Monetary Economics)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Balazs Varga).
If references are entirely missing, you can add them using this form.