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Can the Markov switching model forecast exchange rates?

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  • Charles Engel

Abstract

A Markov-switching model is fit for eighteen exchange rates at quarterly and monthly frequencies. This model fits well in-sample at the quarterly frequency for many exchange rates. By the mean-squared-error or mean-absolute-error criterion. the Markov model does not generate superior forecasts at a random walk or at the forward rate. There appears to be some evidence that the forecast of the Markov model are superior at predicting the direction of change of the exchange rate.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Charles Engel, 1991. "Can the Markov switching model forecast exchange rates?," Research Working Paper 91-04, Federal Reserve Bank of Kansas City.
  • Handle: RePEc:fip:fedkrw:91-04
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign exchange rates; Forecasting;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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