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On Fundamentals And Exchange Rates: A Casselian Perspective

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  • Ronald MacDonald
  • Ian W. Marsh

Abstract

Using an expanded version of the purchasing-power-parity condition we construct simultaneous equation models for three key exchange rates which incorporate meaningful long-run equilibrium relationships and complex short-run dynamics. We show that fully dynamic out-of-sample forecasts from these models are capable of significantly outperforming those of a random walk model over horizons as short as 3 months, and that they are also more accurate than the vast majority of professional forecasts. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Ronald MacDonald & Ian W. Marsh, 1997. "On Fundamentals And Exchange Rates: A Casselian Perspective," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 655-664, November.
  • Handle: RePEc:tpr:restat:v:79:y:1997:i:4:p:655-664
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    References listed on IDEAS

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