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The Exchange Rate Forecasting Puzzle

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  • Francis Vitek

    (University of British Columbia)

Abstract

We survey and update the empirical literature concerning the predictability of nominal exchange rates using structural macroeconomic models over the recent floating exchange rate period. In particular, we consider both flexible and sticky price versions of the monetary model of nominal exchange rate determination. In agreement with the existing empirical literature, we find that nominal exchange rate movements are difficult to forecast, with a random walk generally dominating the monetary model in terms of predictive accuracy conditional on observed monetary fundamentals at all horizons.

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File URL: http://128.118.178.162/eps/if/papers/0509/0509005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0509005.

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Length: 17 pages
Date of creation: 14 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0509005

Note: Type of Document - pdf; pages: 17
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Web page: http://128.118.178.162

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Keywords: Exchange rate forecasting; Monetary model;

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  3. Wolff, Christian C P, 1987. "Time-Varying Parameters and the Out-of-Sample Forecasting Performance of Structural Exchange Rate Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(1), pages 87-97, January.
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  23. Tommaso Monacelli, 2003. "Monetary Policy in a Low Pass-Through Environment," Working Papers 228, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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  1. A pitfall of ageing
    by chris dillow in Stumbling and Mumbling on 2010-03-08 17:10:25
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Cited by:
  1. Daniel Andrés Jaimes Cárdenas & jair Ojeda Joya, 2010. "Reglas de Taylor y previsibilidad fuera de muestra de la tasa de cambio en Latinoamérica," BORRADORES DE ECONOMIA 007308, BANCO DE LA REPÚBLICA.

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