This paper estimates, using stochastic simulation and a multicountry macroeconometric model, the fraction of the forecast-error variance of output changes and the fraction of the forecast-error variance of inflation that are due to unpredictable asset-price changes. The results suggest that...

It is well known that modeling exchange rates is difficult. Meese and Rogoff's (1983) results show that a random walk model performs as well as or better than a variety of structural models, where the forecasts from the structural models are based on the actual values of the future explanatory...