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Why is it so Difficult to Beat the Random Walk Forecast of Exchange Rates?

Kilian, Lutz; Taylor, Mark P - C.E.P.R. Discussion Papers - 2001

reversion in deviations from fundamentals. Our analysis also provides a compelling rationale for the long-horizon predictability … of exchange rates. We find strong empirical support for long-horizon predictability, and we explain why it is difficult … to exploit this predictability in real-time forecasts. Our results not only lend support to economists’ beliefs that the …

Persistent link: https://www.econbiz.de/10005124271

Commodity prices, commodity currencies, and global economic developments

Groen, Jan J. J.; Pesenti, Paolo - C.E.P.R. Discussion Papers - 2010

In this paper we seek to produce forecasts of commodity price movements that can systematically improve on naive statistical benchmarks, and revisit the forecasting performance of changes in commodity currencies as efficient predictors of commodity prices, a view emphasized in the recent...

Persistent link: https://www.econbiz.de/10008530384

The Behaviour of the Real Exchange Rate: A Re-examination Using Finite Sample Approach

Kuo, Biing-Shen; Mikkola, Anne - C.E.P.R. Discussion Papers - 1997

The results of this paper complement the recent findings of real exchange rates as stationary processes. The standard procedure of applying a battery of unit root tests can be problematic since the tests are sensitive to the specifics of the time-series process. The novelty of the approach we...

Persistent link: https://www.econbiz.de/10005504540

Properties of Foreign Exchange Risk Premiums

Sarno, Lucio; Schneider, Paul; Wagner, Christian - C.E.P.R. Discussion Papers - 2011

We study the properties of foreign exchange risk premiums that can explain the forward bias puzzle, defined as the tendency of high-interest rate currencies to appreciate rather than depreciate. These risk premiums arise endogenously from the no-arbitrage condition relating the term structure of...

Persistent link: https://www.econbiz.de/10009209825

Biases of Professional Exchange Rate Forecasts: Psychological Explanations and an Experimentally-Based Comparison to Novices

Bofinger, Peter; Leitner, Johannes; Schmidt, Robert - C.E.P.R. Discussion Papers - 2004

The empirical performance of macroeconomic exchange rate models is more than disappointing. This dismal result is also reflected in the forecasting capabilities of professional analysts: all in all, analysts are not in a position to beat naïve random walk forecasts. The root for this deficient...

Persistent link: https://www.econbiz.de/10005504428

Forecasting Exchange Rates with a Large Bayesian VAR

Carriero, Andrea; Kapetanios, George; Marcellino, … - C.E.P.R. Discussion Papers - 2008

Models based on economic theory have serious problems at forecasting exchange rates better than simple univariate driftless random walk models, especially at short horizons. Multivariate time series models suffer from the same problem. In this paper, we propose to forecast exchange rates with a...

Persistent link: https://www.econbiz.de/10005789104

Can Oil Prices Forecast Exchange Rates?

Ferraro, Domenico; Rogoff, Kenneth; Rossi, Barbara - C.E.P.R. Discussion Papers - 2011

This paper investigates whether oil prices have a reliable and stable out-of-sample relationship with the Canadian/U.S dollar nominal exchange rate. Despite state-of-the-art methodologies, we find little systematic relation between oil prices and the exchange rate at the monthly and quarterly...

Persistent link: https://www.econbiz.de/10009359490

The Purchasing Power Parity Debate

Taylor, Alan M.; Taylor, Mark P - C.E.P.R. Discussion Papers - 2004

Originally propounded by the 16th-century scholars of the University of Salamanca, the concept of purchasing power parity (PPP) was revived in the interwar period in the context of the debate concerning the appropriate level at which to re-establish international exchange rate parities. Broadly...

Persistent link: https://www.econbiz.de/10005662378

How Sure Are We About PPP? Panel Evidence with the Null of Stationary Real Exchange Rates

Kuo, Biing-Shen; Mikkola, Anne - C.E.P.R. Discussion Papers - 1999

There has been serious suspicion of a spurious rejection of the unit roots in panel studies of PPP due to the failure to control for cross-sectional dependence. This article presents evidence of mean-reversion in industrial country real exchange rates in a set up that accounts naturally for...

Persistent link: https://www.econbiz.de/10005661753

The Term Structure of Forward Exchange Premia and the Forecastability of Spot Exchange Rates: Correcting the Errors

Clarida, Richard; Taylor, Mark P - C.E.P.R. Discussion Papers - 1993

This paper challenges the widespread view that forward exchange premia contain little information regarding subsequent spot rate movements. Using weekly dollar/Deutschmark and dollar/sterling data, we show that spot and forward exchange rates are well represented by a vector error correction...

Persistent link: https://www.econbiz.de/10005662140