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Author: Mr.Lorenzo Giorgianni
Publisher: International Monetary Fund
ISBN: 1451842260
Category : Business & Economics
Languages : en
Pages : 22
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Book Description
Several authors have recently investigated the predictability of exchange rates by fitting a sequence of long-horizon error-correction regressions. By considering the implied vector error-correction model, we show that little is to be gained from estimating such regressions for horizons greater than one time period. We also show that in small to medium samples the long-horizon procedure gives rise to spurious evidence of predictive power. A simulation study demonstrates that even when using this technique on two independent series, estimates, diagnostic statistics and graphical evidence incorrectly suggest a high degree of predictability of the dependent variable.
Author: Mr.Lorenzo Giorgianni
Publisher: International Monetary Fund
ISBN: 1451842260
Category : Business & Economics
Languages : en
Pages : 22
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Book Description
Several authors have recently investigated the predictability of exchange rates by fitting a sequence of long-horizon error-correction regressions. By considering the implied vector error-correction model, we show that little is to be gained from estimating such regressions for horizons greater than one time period. We also show that in small to medium samples the long-horizon procedure gives rise to spurious evidence of predictive power. A simulation study demonstrates that even when using this technique on two independent series, estimates, diagnostic statistics and graphical evidence incorrectly suggest a high degree of predictability of the dependent variable.
Author: Lorenzo Giorgianni
Publisher:
ISBN:
Category :
Languages : en
Pages : 21
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Book Description
Several authors have recently investigated the predictability of exchange rates by fitting a sequence of long-horizon error-correction regressions. By considering the implied vector error-correction model, we show that little is to be gained from estimating such regressions for horizons greater than one time period. We also show that in small to medium samples the long-horizon procedure gives rise to spurious evidence of predictive power. A simulation study demonstrates that even when using this technique on two independent series, estimates, diagnostic statistics and graphical evidence incorrectly suggest a high degree of predictability of the dependent variable.
Author: Jon Faust
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We examine the forecasting performance of standard macro models of exchange rates in real time, using dozens of different vintages of the OECDs Main Economic Indicators database. We calculate out-of-sample forecasts as they would have been made at the time, and compare them to a random walk alternative. The resulting "time series" of forecast performance indicates that both data revisions and changes in the sample period typically have large effects on exchange rate predictability. We show that the favorable evidence of long-horizon exchange rate predictability for the DM and Yen in Mark (1995) is present in only a narrow two-year window of data vintages around that used by Mark. In addition, approximately one-third of the improved forecasting performance of Mark's monetary model over a random walk is eventually undone by data revisions. Related to this, we find the models consistently perform better using original release data than using fully revised data. Finally, we find that model-based exchange rate forecasts are sometimes better when using Federal Reserve Staff forecasts of future fundamentals instead of actual future values of fundamentals. This contradicts a cherished presumption in the literature that dates all the way back to Meese and Rogoff (1983).
Author: Lutz Kilian
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Long-horizon regression tests are widely used in empirical finance, despite evidence of severe size distortions. This paper introduces a new bootstrap method for small-sample inference in long-horizon regressions. A Monte Carlo study shows that this bootstrap test has much smaller size distortions than conventional long-horizon regression tests. It is also shown that long-horizon regression tests do not have power advantages against economically plausible alternatives. The apparent lack of higher power at long horizons suggests that previous findings of increasing long-horizon predictability are more likely due to size distortions than to power gains. The use of the bootstrap method is illustrated by analyzing whether deviations from monetary fundamentals help predict changes in four major exchange rates. In contrast to earlier studies, the test provides only weak evidence of exchange rate predictability and no evidence of increasing long-horizon predictability. Many of the differences in results can be traced to the implementation of the test.
Author: Jessica James
Publisher: John Wiley & Sons
ISBN: 1118445775
Category : Business & Economics
Languages : en
Pages : 674
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Book Description
Praise for Handbook of Exchange Rates “This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field.” —Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley “It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across. I will be keeping a copy close to my fingertips.” —Jim O’Neill, Chairman, Goldman Sachs Asset Management How should we evaluate the forecasting power of models? What are appropriate loss functions for major market participants? Is the exchange rate the only means of adjustment? Handbook of Exchange Rates answers these questions and many more, equipping readers with the relevant concepts and policies for working in today’s international economic climate. Featuring contributions written by leading specialists from the global financial arena, this handbook provides a collection of original ideas on foreign exchange (FX) rates in four succinct sections: • Overview introduces the history of the FX market and exchange rate regimes, discussing key instruments in the trading environment as well as macro and micro approaches to FX determination. • Exchange Rate Models and Methods focuses on forecasting exchange rates, featuring methodological contributions on the statistical methods for evaluating forecast performance, parity relationships, fair value models, and flow–based models. • FX Markets and Products outlines active currency management, currency hedging, hedge accounting; high frequency and algorithmic trading in FX; and FX strategy-based products. • FX Markets and Policy explores the current policies in place in global markets and presents a framework for analyzing financial crises. Throughout the book, topics are explored in-depth alongside their founding principles. Each chapter uses real-world examples from the financial industry and concludes with a summary that outlines key points and concepts. Handbook of Exchange Rates is an essential reference for fund managers and investors as well as practitioners and researchers working in finance, banking, business, and econometrics. The book also serves as a valuable supplement for courses on economics, business, and international finance at the upper-undergraduate and graduate levels.
Author: Mr.Guy Meredith
Publisher: International Monetary Fund
ISBN: 1451843933
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
The medium-term predictability of exchange rate movements is examined using three models of fundamentals: purchasing power parity, the monetary model, and uncovered interest parity. While the first two approaches yield favorable in-sample results, these largely reflect finite-sample estimation biases. Adjusting for these biases, there is little evidence of predictability, consistent with the lack of systematic improvement in out-of-sample forecasting performance relative to a random walk. Uncovered interest parity fares better at long horizons, but reflects information already embodied in market prices; in this sense, it may not be useful as an indicator of exchange rate misalignment. While more elaborate models of fundamentals might have better medium-term forecasting properties, careful attention must be paid to finite-sample biases in assessing predictability.
Author: Doo-Yull Choi
Publisher:
ISBN:
Category :
Languages : en
Pages : 326
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Book Description
Author: Barbara Rossi
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 74
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Book Description
The main goal of this article is to provide an answer to the question: "Does anything forecast exchange rates, and if so, which variables?". It is well known that exchange rate fluctuations are very difficult to predict using economic models, and that a random walk forecasts exchange rates better than any economic model (the Meese and Rogoff puzzle). However, the recent literature has identified a series of fundamentals/methodologies that claim to have resolved the puzzle. This article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up-to-date, thorough empirical analysis. Overall, our analysis of the literature and the data suggests that the answer to the question: "Are exchange rates predictable?" is, "It depends" on the choice of predictor, forecast horizon, sample period, model, and forecast evaluation method. Predictability is most apparent when one or more of the following hold: the predictors are Taylor rule or net foreign assets, the model is linear, and a small number of parameters are estimated. The toughest benchmark is the random walk without drift.
Author: Robert Cumby
Publisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 60
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Book Description
Nominal exchange rates do not move to offset differences in inflation rates on a month to month, quarter to quarter, or even year to year basis, resulting in sizable real exchange rate changes. Are these changes predictable? We address this question in three ways. First, we describe a variety of tests of predictability and explain how the different tests are related. Next, we implement the tests for the U.S. dollar relative to four currencies and find statistically significant evidence that real exchange rate changes are predictable. Finally, we examine whether the predictability is of an economically interesting magnitude.
Author: Nelson C. Mark
Publisher:
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 29
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Book Description
