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Fundamentals, forecast combinations and nominal exchange-rate predictability

Listed author(s):
  • Wu, Jyh-Lin
  • Wang, Yi-Chiuan
Registered author(s):

    This paper investigates the out-predictability of fundamentals and forecast combinations. By adopting a panel-based specification, the paper obtains several interesting results. First, the Taylor-rule-based fundamental is the best among the four different fundamentals under consideration in out-of-sample contests. It provides strong evidence to out-predict the random walk over the PBW period. Second, relative to a single-equation prediction, panel predictions are generally able to enhance the statistical significance of beating the random walk. Third, combining forecasts from different fundamentals that have relatively strong out-predictability at a specific horizon does enhance both the statistical and economic significances of beating the random walk for the PBW period at short horizons.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059056012000627
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 25 (2013)
    Issue (Month): C ()
    Pages: 129-145

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    Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:129-145
    DOI: 10.1016/j.iref.2012.07.002
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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