Exchange Rate Predictability Including Taylor Rule Fundamentals
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Taylor Rule Deviations And Out Of Sample Exchange Rate Predictability
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Author : Onur Ince
language : en
Publisher:
Release Date : 2019
Taylor Rule Deviations And Out Of Sample Exchange Rate Predictability written by Onur Ince and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
The Taylor rule has become the dominant model for academic evaluation of out-of-sample exchange rate predictability. Two versions of the Taylor rule model are the Taylor rule fundamentals model, where the variables that enter the Taylor rule are used to forecast exchange rate changes, and the Taylor rule differentials model, where a Taylor rule with postulated coefficients is used in the forecasting regression. We use data from 1973 to 2014 to evaluate short-run out-of-sample predictability for eight exchange rates vis-à-vis the U.S. dollar, and find strong evidence in favor of the Taylor rule fundamentals model alternative against the random walk null. The evidence of predictability is weaker with the Taylor rule differentials model, and still weaker with the traditional interest rate differential, purchasing power parity, and monetary models. The evidence of predictability for the fundamentals model is not related to deviations from the original Taylor rule for the U.S., but is related to deviations from a modified Taylor rule for the U.S. with a higher coefficient on the output gap. The evidence of predictability is also unrelated to deviations from Taylor rules for the foreign countries and adherence to the Taylor principle for the U.S.
Out Of Sample Exchange Rate Predictability With Taylor Rule Fundamentals And Real Time Data
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Author : Tetyana Molodtsova
language : en
Publisher:
Release Date : 2008
Out Of Sample Exchange Rate Predictability With Taylor Rule Fundamentals And Real Time Data written by Tetyana Molodtsova and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Foreign exchange rates categories.
Exchange Rate Predictability Including Taylor Rule Fundamentals
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Author : Anne E. Hannusch
language : en
Publisher:
Release Date : 2010
Exchange Rate Predictability Including Taylor Rule Fundamentals written by Anne E. Hannusch and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
An extensive literature has studied the out-of-sample forecasting performance of empirical exchange rate models. Despite the application of advanced econometric methods and the maturation of the floating exchange rate era, the results of Meese and Rogoff (1983a) stand up remarkably well: fundamental exchange rate models are not able to outperform a random walk. This phenomenon became known as the exchange rate disconnect puzzle. Molodtsova and Papell (2009) challenge these results by incorporating Taylor rule fundamentals into a structural exchange rate model. Rolling regressions are used to produce the one-month ahead forecasts. Looking at the Clark and West statistic, they find that the model is able to outperform a driftless random walk for 10 out of 12 currencies against the U.S. dollar. By revisiting the Molodtsova and Papell (2009) study, I find that the results are sensitive to the underlying in-sample size that is used to estimate rolling regressions and generate the one-month ahead predictions. However, the single-country regression procedure, as applied by Molodtsova and Papell (2009), performs very well when applied to an updated and revised data set. Panel regressions produce consistent results across both data sets as well, thereby suggesting that the model is robust to data revision and extension as well as different econometric techniques. However, the results remain sensitive to the varying in-sample size. Hence, systematical testing for multiple structural breaks appears to be the key issue to find robust evidence of exchange rate predictability.
Out Of Sample Exchange Rate Predictability With Taylor Rule Fundamentals
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Author : Tanya Molodtsova
language : en
Publisher:
Release Date : 2009
Out Of Sample Exchange Rate Predictability With Taylor Rule Fundamentals written by Tanya Molodtsova and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
An extensive literature that studied the performance of empirical exchange rate models following Meese and Rogoff's (1983a) seminal paper has not convincingly found evidence of out-of-sample exchange rate predictability. This paper extends the conventional set of models of exchange rate determination by investigating predictability of models that incorporate Taylor rule fundamentals. We find evidence of short term predictability for 11 out of 12 currencies vis-a-vis the U.S. dollar over the post-Bretton Woods float, with the strongest evidence coming from specifications that incorporate heterogeneous coefficients and interest rate smoothing. The evidence of predictability is much stronger with Taylor rule models than with conventional interest rate, purchasing power parity, or monetary models.
Out Of Sample Exchange Rate Predictability With Real Time Data
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Author : Onur Ince
language : en
Publisher:
Release Date : 2019
Out Of Sample Exchange Rate Predictability With Real Time Data written by Onur Ince and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This paper evaluates short-run out-of-sample exchange rate predictability with real-time data for 15 OECD countries from 1973 to 2013. We consider the Taylor rule fundamentals model, where the variables that enter the Taylor rule are used to forecast exchange rate changes, and the Taylor rule differentials model, where a Taylor rule with postulated coefficients is used in the forecasting regression. We find evidence of predictability with the Taylor rule fundamentals model for 9 out of 15 countries. The Taylor rule differentials model performs worse, and the evidence of predictability is the weakest with the conventional monetary and PPP models.
The Taylor Rule And Interval Forecast For Exchange Rates
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Author : Jian Wang
language : en
Publisher:
Release Date : 2009
The Taylor Rule And Interval Forecast For Exchange Rates written by Jian Wang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with Monetary policy categories.
"This paper attacks the Meese-Rogoff puzzle from a different perspective: out-of-sample interval forecasting. Most studies in the literature focus on point forecasts. In this paper, we apply Robust Semiparametric (RS) interval forecasting to a group of Taylor rule models. Forecast intervals for twelve OECD exchange rates are generated and modified tests of Giacomini and White (2006) are conducted to compare the performance of Taylor rule models and the random walk. Our contribution is twofold. First, we find that in general, Taylor rule models generate tighter forecast intervals than the random walk, given that their intervals cover out-of-sample exchange rate realizations equally well. This result is more pronounced at longer horizons. Our results suggest a connection between exchange rates and economic fundamentals: economic variables contain information useful in forecasting the distributions of exchange rates. The benchmark Taylor rule model is also found to perform better than the monetary and PPP models. Second, the inference framework proposed in this paper for forecast-interval evaluation can be applied in a broader context, such as inflation forecasting, not just to the models and interval forecasting methods used in this paper"--P. [2].
Exchange Rate Predictability In A Changing World
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Author : Joseph P. Byrne
language : en
Publisher:
Release Date : 2014
Exchange Rate Predictability In A Changing World written by Joseph P. Byrne and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Exchange Rate Predictability
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Author : Barbara Rossi
language : en
Publisher:
Release Date : 2013
Exchange Rate Predictability written by Barbara Rossi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Foreign exchange categories.
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.
Out Of Sample Exchange Rate Predictability In Emerging Markets
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Author : Ibrahim Jamali
language : en
Publisher:
Release Date : 2019
Out Of Sample Exchange Rate Predictability In Emerging Markets written by Ibrahim Jamali and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
We provide an in-depth analysis of the predictive ability of models with fundamentals and technical indicators for fourteen emerging market currencies. Our findings suggest that the forecasts from the symmetric Taylor rule as well as from a predictive regression exploiting the informational content of the momentum indicator are statistically superior to those of the random walk and other competing models. We combine the forecasts from the two best performing models via simple techniques and assess the economic significance of the out-of-sample forecasts using a trading strategy based on the sign of the predicted currency returns. Our economic significance results demonstrate that the symmetric Taylor rule, momentum and combination forecasts generate the largest net-of-transactions costs and risk-adjusted returns.
Taylor Rule Deviations And Out Of Sample Exchange Rate Predictability
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Author : Onur Ince
language : en
Publisher:
Release Date : 2015
Taylor Rule Deviations And Out Of Sample Exchange Rate Predictability written by Onur Ince and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.