The Taylor Rule And Interval Forecast For Exchange Rates
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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].
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.
The Uncovered Interest Parity Puzzle Exchange Rate Forecasting And Taylor Rules
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Author : Charles Engel
language : en
Publisher:
Release Date : 2017
The Uncovered Interest Parity Puzzle Exchange Rate Forecasting And Taylor Rules written by Charles Engel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
Recent research has found that the Taylor-rule fundamentals have power to forecast changes in U.S. dollar exchange rates out of sample. Our work casts some doubt on that claim. However, we find strong evidence of a related in-sample anomaly. When we include U.S. inflation in the well-known uncovered interest parity regression of the change in the exchange rate on the interest-rate differential, we find that the inflation variable is highly significant and the interest-rate differential is not. Specifically, high U.S. inflation in one month forecasts dollar appreciation in the subsequent month. We introduce a model in which a Taylor rule determines monetary policy, but in which not only monetary shocks but also liquidity shocks drive nominal interest rates. This model can potentially account for the empirical findings.
Taylor Rule Exchange Rate Forecasting During The Financial Crisis
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Author : Tanya Molodtsova
language : en
Publisher:
Release Date : 2012
Taylor Rule Exchange Rate Forecasting During The Financial Crisis 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 2012 with Economics categories.
This paper evaluates out-of-sample exchange rate predictability of Taylor rule models, where the central bank sets the interest rate in response to inflation and either the output or the unemployment gap, for the euro/dollar exchange rate with real-time data before, during, and after the financial crisis of 2008-2009. While all Taylor rule specifications outperform the random walk with forecasts ending between 2007:Q1 and 2008:Q2, only the specification with both estimated coefficients and the unemployment gap consistently outperforms the random walk from 2007:Q1 through 2012:Q1. Several Taylor rule models that are augmented with credit spreads or financial condition indexes outperform the original Taylor rule models. The performance of the Taylor rule models is superior to the interest rate differentials, monetary, and purchasing power parity models.
Taylor Rules And The Deutschmark Dollar Real Exchange Rate
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Author : Charles Engel
language : en
Publisher:
Release Date : 2004
Taylor Rules And The Deutschmark Dollar Real Exchange Rate written by Charles Engel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with Foreign exchange rates categories.
"We explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate. The interest rate rule, in conjunction with some standard assumptions, implies that the deviation of the real exchange rate from its steady state depends on the present value of a weighted sum of inflation and output gap differentials. The weights are functions of the parameters of the interest rate rule. An initial look at German data yields some support for the model"--National Bureau of Economic Research web site.
Forecasting Exchange Rates The Time Varying Relationship Between Exchange Rates And Taylor Rule Fundamentals
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Author : Ulrich Haskamp
language : en
Publisher:
Release Date : 2017
Forecasting Exchange Rates The Time Varying Relationship Between Exchange Rates And Taylor Rule Fundamentals written by Ulrich Haskamp and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
Foreign Exchange Rates
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Author : Arif Orçun Söylemez
language : en
Publisher: Routledge
Release Date : 2021-02-07
Foreign Exchange Rates written by Arif Orçun Söylemez and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-02-07 with Business & Economics categories.
Predicting foreign exchange rates has presented a long-standing challenge for economists. However, the recent advances in computational techniques, statistical methods, newer datasets on emerging market currencies, etc., offer some hope. While we are still unable to beat a driftless random walk model, there has been serious progress in the field. This book provides an in-depth assessment of the use of novel statistical approaches and machine learning tools in predicting foreign exchange rate movement. First, it offers a historical account of how exchange rate regimes have evolved over time, which is critical to understanding turning points in a historical time series. It then presents an overview of the previous attempts at modeling exchange rates, and how different methods fared during this process. At the core sections of the book, the author examines the time series characteristics of exchange rates and how contemporary statistics and machine learning can be useful in improving predictive power, compared to previous methods used. Exchange rate determination is an active research area, and this book will appeal to graduate-level students of international economics, international finance, open economy macroeconomics, and management. The book is written in a clear, engaging, and straightforward way, and will greatly improve access to this much-needed knowledge in the field.
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.
Comment On Taylor Rule Exchange Rate Forecasting During The Financial Crisis
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Author : Michael W. McCracken
language : en
Publisher:
Release Date : 2012
Comment On Taylor Rule Exchange Rate Forecasting During The Financial Crisis written by Michael W. McCracken and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with 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.