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The Performance of Exchange Rate Forecasts

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  • Philip W. Lowe
  • Robert G. Trevor

Abstract

Since the floating of the Australian dollar the forecasting of exchange rate movements has become more difficult and received much more attention. As a result, some participants in the foreign exchange market have, on a number of occasions, come under criticism for their inability to predict exchange rate movements. This article seeks to evaluate these criticisms through an examination of exchange rate forecasts made by market participants (as published in the Australian Financial Review from March 1985 to December 1985). The accuracy of the $A/US$ forecasts is compared with that of forecasts generated from a number of simple forecasting rules as well as forecasts of the US$/Yen exchange rate. In general, the simple forecasting rules provide superior forecasts to those provided by the individual market participants. However, under some criteria, the mean of the individual participants' forecasts may be preferred to these simple forecasting rules. Further, the comparison of the US$/Yen forecasts with the $A/US$ forecasts shows the former to be generally more accurate.

Suggested Citation

  • Philip W. Lowe & Robert G. Trevor, 1987. "The Performance of Exchange Rate Forecasts," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 20(4), pages 31-44, December.
    • Handle: RePEc:bla:ausecr:v:20:y:1987:i:4:p:31-44
    DOI: 10.1111/j.1467-8462.1987.tb00676.x
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    References listed on IDEAS

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    1. Warren J. Tease, 1986. "Risk Premia, Market Efficiency and the Exchange Rate: Some Evidence Since the Float," RBA Research Discussion Papers rdp8603, Reserve Bank of Australia.
    2. Victor Zarnowitz, 1982. "The Accuracy of Individual and Group Forecasts from Business Outlook Surveys," NBER Working Papers 1053, National Bureau of Economic Research, Inc.
    3. Victor Zarnowitz, 1982. "Expectations and Forecasts from Business Outlook Surveys," NBER Working Papers 0845, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Warren J. Tease, 1988. "The Expectations Theory of the Term Structure of Interest Rates in Australia," The Economic Record, The Economic Society of Australia, vol. 64(2), pages 120-127, June.
    2. Markus Spiwoks & Oliver Hein, 2007. "Die Währungs-, Anleihen- und Aktienmarktprognosen des Zentrums für Europäische Wirtschaftsforschung," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 1(1), pages 43-52, June.
    3. G. C. Lim & C. R. McKenzie, 1998. "Testing the rationality of expectations in the Australian foreign exchange market using survey data with missing observations," Applied Financial Economics, Taylor & Francis Journals, vol. 8(2), pages 181-190.
    4. M. Manzur, 1988. "How Much are Exchange Rate Forecasts Worth?," Economics Discussion / Working Papers 88-18, The University of Western Australia, Department of Economics.

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