Adaptive forecasting of exchange rates with panel data

Arbeitspapier

This article investigates the statistical and economic implications of adaptive forecasting of exchange rates with panel data and alternative predictors. The candidate exchange rate predictors are drawn from (i) macroeconomic 'fundamentals', (ii) return/volatility of asset markets and (iii) cyclical and confidence indices. Exchange rate forecasts at various horizons are obtained from each of the potential predictors using single market, mean group and pooled estimates by means of rolling window and recursive forecasting schemes. The capabilities of single predictors and of adaptive techniques for combining the generated exchange rate forecasts are subsequently examined by means of statistical and economic performance measures. The forward premium and a predictor based on a Taylor rule yield the most promising forecasting results out of the macro 'fundamentals' considered. For recursive forecasting, confidence indices and volatility in-mean yield more accurate forecasts than most of the macro 'fundamentals'. Adaptive forecast combinations techniques improve forecasting precision and lead to better market timing than most single predictors at higher horizons.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1656

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: General ; Foreign Exchange ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: exchange rate forecasting ; panel data ; forecast combinations ; market timing ; Wechselkurs ; Prognoseverfahren ; Adaptive Erwartung ; Panel ; Panel ; Makroökonomischer Einfluss ; Schätzung ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Morales-Arias, Leonardo ; Dross, Alexander
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/41553
• Last update: 10.03.2025, 11:44 AM CET