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...

We propose a way to test the New Keynesian Phillips Curve (NKPC) without estimating the structural parameters governing the curve, i.e. price stickiness and firms' backwardness. Using this strategy we can test the NKPC avoiding the identification problems related to the GMM approach. We find...

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...