The Uncovered Interest Parity Puzzle Exchange Rate Forecasting And Taylor Rules
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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.
The Uncovered Interest Rate Parity Puzzle In The Foreign Exchange Market
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Author : Sahil Aggarwal
language : en
Publisher:
Release Date : 2013
The Uncovered Interest Rate Parity Puzzle In The Foreign Exchange Market written by Sahil Aggarwal and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
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.
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].
Changing Monetary Policy Rules Learning And Real Exchange Rate Dynamics
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Author : Nelson Chung Mark
language : en
Publisher:
Release Date : 2005
Changing Monetary Policy Rules Learning And Real Exchange Rate Dynamics written by Nelson Chung Mark and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Foreign exchange categories.
"When central banks set nominal interest rates according to an interest rate reaction function, such as the Taylor rule, and the exchange rate is priced by uncovered interest parity, the real exchange rate is determined by expected inflation differentials and output gap differentials. In this paper I examine the implications of these Taylor-rule fundamentals for real exchange rate determination in an environment where market participants are ignorant of the numerical values of the model's coefficients but attempt to acquire that information using least-squares learning rules. I find evidence that this simple learning environment provides a plausible framework for understanding real dollar--DM exchange rate dynamics from 1976 to 2003. The least-squares learning path for the real exchange rate implied by inflation and output gap data exhibits the real depreciation of the 70s, the great appreciation (1979.4-1985.1) and the subsequent great depreciation (1985.2-1991.1) observed in the data. An emphasis on Taylor-rule fundamentals may provide a resolution to the exchange rate disconnect puzzle"--National Bureau of Economic Research web site.
Uncovered Interest Parity
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Author : Alain P. Chaboud
language : en
Publisher:
Release Date : 2003
Uncovered Interest Parity written by Alain P. Chaboud and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Interest rates categories.
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.
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.
Covered Interest Parity Uncovered Interest Parity And Exchange Rate Dynamics
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Author : Jonathan Eaton
language : en
Publisher:
Release Date : 1987
Covered Interest Parity Uncovered Interest Parity And Exchange Rate Dynamics written by Jonathan Eaton and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1987 with categories.
Deviations From Uncovered Interest Parity
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Author : Evan Tanner
language : en
Publisher:
Release Date : 2006
Deviations From Uncovered Interest Parity written by Evan Tanner and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
Ex-post deviations from uncovered interest parity (UIP) realized differences between dollar returns on identical assets of different currencies equal the real interest differential plus real exchange rate growth. Among industrialized countries, UIP deviations are largely explained by unanticipated real exchange rate growth, but among developing countries, real interest differentials are quot;where the action is.quot; This observation is due to the greater variability of inflation in developing countries, but may also stem from higher and more variable risks and capital controls in these countries. Also, among developing countries with moderate inflation, offsetting comovements of real interest differentials and real exchange growth support the sticky-price hypothesis.