Exchange rate forecasts and expected fundamentals

Arbeitspapier

Using a large panel of individual professionals' forecasts, this paper demonstrates that good exchange rate forecasts are related to a proper understanding of fundamentals, specifically good interest rate forecasts. This relationship is robust to individual fixed effects and further controls. Reassuringly, the relationship is stronger during phases when the impact from fundamentals is more obvious, e.g., when exchange rates substantially deviate from their PPP values. Finally, forecasters largely agree that an interest rate increase relates to a currency appreciation, but only good forecasters get expected interest rates right.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1974

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; International Finance Forecasting and Simulation: Models and Applications ; Financial Markets and the Macroeconomy
• Subject: Exchange Rate Determination ; Individual Expectations ; Macroeconomic Fundamentals

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dick, Christian D. ; MacDonald, Ronald ; Menkhoff, Lukas
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/103982
• Last update: 10.03.2025, 11:44 AM CET