Conventional and unconventional approaches to exchange rate modeling and assessment

Arbeitspapier

We examine the relative predictive power of the sticky price monetary model, uncovered interest parity, and a transformation of the net exports variable. In addition to bringing a new approach (utilizing our measure of external imbalance suggested by Gourinchas and Rey) and data spanning a more recent period to bear, we implement the Clark and West (forthcoming) procedure for testing the significance of out-of-sample forecasts. The interest rate parity relation holds better at long horizons and the net exports variable does well in predicting exchange rates at short horizons in-sample. In out-of-sample forecasts, we find evidence that uncovered interest parity outperforms a random walk at long horizons and that the measure of external imbalance does well at short horizons, although we cannot duplicate the findings of Gourinchas and Rey.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 06-05

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications
• Subject: exchange rates ; monetary model ; net foreign assets ; interest rate parity ; forecasting performance ; Geldpolitik ; Zins ; Außenwirtschaft ; Wechselkurs ; Prognose ; Random Walk

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Alquist, Ron ; Chinn, Menzie D.
• Event: Veröffentlichung
• (who): University of California, Santa Cruz Institute for International Economics (SCIIE)
• (where): Santa Cruz, CA
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/64099
• Last update: 10.03.2025, 11:41 AM CET