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Can Macroeconomists Get Rich Forecasting Exchange Rates?

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  • Jesus Crespo Cuaresma

    () (Department of Economics, Vienna University of Economics and Business)

  • Mauro Costantini

    () (Department of Economics and Finance, Brunel University)

  • Jaroslava Hlouskova

    () (Institute for Advanced Studies, Vienna)

Abstract

We provide a systematic comparison of the out-of-sample forecasts based on multivariate macroeconomic models and forecast combinations for the euro against the US dollar, the British pound, the Swiss franc and the Japanese yen. We use profit maximization measures based on directional accuracy and trading strategies in addition to standard loss minimization measures. When comparing predictive accuracy and profit measures, data snooping bias free tests are used. The results indicate that forecast combinations help to improve over benchmark trading strategies for the exchange rate against the US dollar and the British pound, although the excess return per unit of deviation is limited. For the euro against the Swiss franc or the Japanese yen, no evidence of generalized improvement in profit measures over the benchmark is found.

Suggested Citation

  • Jesus Crespo Cuaresma & Mauro Costantini & Jaroslava Hlouskova, 2014. "Can Macroeconomists Get Rich Forecasting Exchange Rates?," Department of Economics Working Papers wuwp176, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp176
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    Cited by:

    1. Florian Huber & Tamás Krisztin & Philipp Piribauer, 2017. "Forecasting Global Equity Indices Using Large Bayesian Vars," Bulletin of Economic Research, Wiley Blackwell, vol. 69(3), pages 288-308, July.
    2. Michele Costola & Massimiliano Caporin, 2016. "Rational Learning For Risk-Averse Investors By Conditioning On Behavioral Choices," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-26, March.

    More about this item

    Keywords

    Exchange rate forecasting; forecast combination; multivariate time series models; profitability;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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