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Exchange Rates Predictability in Developing Countries

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  • Sarmidi, Tamat

Abstract

The main objective of this study is to re-investigates the exchange rates predictability puzzle using monetary model. It is hypothesised that the performance of exchange rate predictability is better off in countries with monetary instability. We employ bootstrap technique as proposed by Kilian (1999) to alleviate statistical inference intricacies inherit in the long horizon forecasting for three different monetary models (flexible price, sticky price and relative price) for selected developing economies. The empirical result shows the superiority of sticky price model along with the evidence of exchange rate predictability for high inflation economies.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16580.

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Date of creation: 22 Jan 2008
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Handle: RePEc:pra:mprapa:16580

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Keywords: Foreign exchange; international finance; forecasting;

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References

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  3. Wang, Jian-Xin & Wong, Hoi-In, 1997. "The predictability of Asian exchange rates: evidence from Kalman filter and ARCH estimations," Journal of Multinational Financial Management, Elsevier, vol. 7(3), pages 231-252, October.
  4. Rogoff, Kenneth, 1999. "Monetary Models of Dollar/Yen/Euro Nominal Exchange Rates: Dead or Undead?," Economic Journal, Royal Economic Society, vol. 109(459), pages F655-59, November.
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  11. Cavanagh, Christopher L. & Elliott, Graham & Stock, James H., 1995. "Inference in Models with Nearly Integrated Regressors," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1131-1147, October.
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  16. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
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  22. 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.
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Cited by:
  1. Daniel Andrés Jaimes Cárdenas & Jair Ojeda Joya, . "Reglas de Taylor y previsibilidad fuera de muestra de la tasa de cambio en Latinoamérica," Borradores de Economia 619, Banco de la Republica de Colombia.

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