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The Exchange Rate Forecasting Puzzle

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Author Info
Francis Vitek (University of British Columbia)

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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://129.3.20.41/eps/if/papers/0509/0509005.pdf
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Publisher 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
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Handle: RePEc:wpa:wuwpif:0509005

Note: Type of Document - pdf; pages: 17
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Web page: http://129.3.20.41

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Related research
Keywords: Exchange rate forecasting; Monetary model;

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange

This paper has been announced in the following NEP Reports:

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  17. 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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  21. Mussa, Michael, 1979. "Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 9-57, January. [Downloadable!] (restricted)
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  24. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-18, March.
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    Other versions:
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