Revisiting The Out Of Sample Exchange Rate Predictability In The Monetary Model
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Revisiting The Out Of Sample Exchange Rate Predictability In The Monetary Model
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Author : Hsiu-Hsin Ko
language : en
Publisher:
Release Date : 2016
Revisiting The Out Of Sample Exchange Rate Predictability In The Monetary Model written by Hsiu-Hsin Ko and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
We utilize Monte Carlo simulations to evaluate, in finite samples, the forecasting performance of the monetary model. The data generating process (DGP) is based on the assumptions of Engel and West (2005) about the present-value model for exchange rates, namely that the discount factor is close to unity and the fundamentals have unit-root processes. We evaluate the out-of-sample performance of the monetary model against the random walk model by using the long-run regression test. While the forecasting power of the long-run regression is not strong, the experimental evidence illustrates that the probability of out-of-sample exchange rate predictability at long horizons is generally larger than that at the short horizons. We conclude that the present-value model under Engel and West's (2005) explanation has a heretofore unrecognized implication of out-of-sample exchange rate predictability at long run horizons.
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.
Medium Term Exchange Rate Forecasting
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Author : Mr.Guy Meredith
language : en
Publisher: International Monetary Fund
Release Date : 2003-01-01
Medium Term Exchange Rate Forecasting written by Mr.Guy Meredith and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-01-01 with Business & Economics categories.
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.
The Monetary Model Strikes Back
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Author : Valerie Cerra
language : en
Publisher: International Monetary Fund
Release Date : 2008-03
The Monetary Model Strikes Back written by Valerie Cerra and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008-03 with Business & Economics categories.
We revisit the dramatic failure of monetary models in explaining exchange rate movements. Using the information content from 98 countries, we find strong evidence for cointegration between nominal exchange rates and monetary fundamentals. We also find fundamentalsbased models very successful in beating a random walk in out-of-sample prediction.
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
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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 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.
Exchange Rate Forecasting
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Author : Jon Faust
language : en
Publisher:
Release Date : 2001
Exchange Rate Forecasting written by Jon Faust and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with Foreign exchange rates categories.
The Monetary Model Of Exchange Rates And Cointegration
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Author : J. Gardeazabal
language : en
Publisher:
Release Date : 1992
The Monetary Model Of Exchange Rates And Cointegration written by J. Gardeazabal and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1992 with categories.
These notes draw from the Theory of Cointegration in order to test the monetary model of exchange rate determination. Previous evidence shows that the monetary model does not capture the short run dynamics of the exchange rate, specially when assessed in terms of forecasting accuracy. Even though the monetary equations of exchange rate determination may be bad indicators of how exchange rates are determined in the short run, they couldstill describe long run equilibrium relationships between the exchange rate and its fundamentals. Stationary deviations from those long run relationships are allowed in the short run. This book also addresses severalissues on Cointegration. Chapter 6 studies the small sample distribution of the likelihood ratio test statistics (on the dimension and restrictions on the cointegrating space) under deviations from normality. This monograph also focuses on the issue of optimal prediction in partially nonstationary multivariate time series models. In particular, it caries out an exchange rate prediction exercise.
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.