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The Exchange Rate Forecasting Puzzle

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  • Francis Vitek

    (University of British Columbia)

Abstract

We survey and update the empirical literature concerning the predictability of nominal exchange rates using structural macroeconomic models over the recent floating exchange rate period. In particular, we consider both flexible and sticky price versions of the monetary model of nominal exchange rate determination. In agreement with the existing empirical literature, we find that nominal exchange rate movements are difficult to forecast, with a random walk generally dominating the monetary model in terms of predictive accuracy conditional on observed monetary fundamentals at all horizons.

Suggested Citation

  • Francis Vitek, 2005. "The Exchange Rate Forecasting Puzzle," International Finance 0509005, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:0509005
    Note: Type of Document - pdf; pages: 17
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0509/0509005.pdf
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    References listed on IDEAS

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    1. A pitfall of ageing
      by chris dillow in Stumbling and Mumbling on 2010-03-08 23:10:25

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    Cited by:

    1. Daniel Andrés Jaimes Cárdenas & Jair Ojeda Joya, 2010. "Reglas de Taylor y previsibilidad fuera de muestra de la tasa de cambio en Latinoamérica," Borradores de Economia 619, Banco de la Republica de Colombia.
    2. Matos, Paulo & Beviláqua, Giovanni & Filho, Jaime, 2012. "Previsão do câmbio real-dólar sob um arcabouço de apreçamento de ativos," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 66(3), October.
    3. repec:fgv:epgrbe:v:66:n:3:a:3 is not listed on IDEAS

    More about this item

    Keywords

    Exchange rate forecasting; Monetary model;

    JEL classification:

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

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