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Forecasting exchange rates out of sample: random walk vs Markov switching regimes

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  • Dimitris Kirikos

Abstract

A random walk is compared with a Markov switching regimes process in forecasting exchange rates out of sample, using quarterly data on three currencies relative to the US dollar over the period 1973:3-1997:3. The results show that the relative performance of the models varies with the length of the post-sample period suggesting that the availability of more past information may be useful in forecasting future exchange rates.

Suggested Citation

  • Dimitris Kirikos, 2000. "Forecasting exchange rates out of sample: random walk vs Markov switching regimes," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 133-136.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:2:p:133-136
    DOI: 10.1080/135048500351979
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    References listed on IDEAS

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    1. Woo, Wing T., 1985. "The monetary approach to exchange rate determination under rational expectations: The dollar-deutschmark rate," Journal of International Economics, Elsevier, vol. 18(1-2), pages 1-16, February.
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    4. Hoffman, Dennis L. & Schlagenhauf, Don E., 1983. "Rational expectations and monetary models of exchange rate determination : An empirical examination," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 247-260.
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    7. Dimitris Kirikos, 1996. "The role of the forecast-generating process in assessing asset market models of the exchange rate: a non-linear case," The European Journal of Finance, Taylor & Francis Journals, vol. 2(2), pages 125-144.
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    Cited by:

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    14. Chien-Chung Nieh & Jeng-Bau Lin & Yu-Shan Wang, 2008. "Regime-switching analysis for the impacts of exchange rate volatility on corporate values: a Taiwanese case," Applied Economics, Taylor & Francis Journals, vol. 40(4), pages 491-504.
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