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Conventional and unconventional approaches to exchange rate modelling and assessment

โœ Scribed by Ron Alquist; Menzie D. Chinn

Publisher
John Wiley and Sons
Year
2008
Tongue
English
Weight
169 KB
Volume
13
Category
Article
ISSN
1076-9307

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โœฆ Synopsis

Abstract

We examine the relative predictive power of the sticky price monetary model, uncovered interest parity, and a transformation of net exports and net foreign assets. In addition to bringing Gourinchas and Rey's new approach and more recent data to bear, we implement the Clarkโ€“West procedure for testing the significance of outโ€ofโ€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 outโ€ofโ€sample forecasts, we find evidence that our proxy for Gourinchas and Rey's measure of external imbalances outperforms a random walk at short horizons as do some of the other models, although no single model uniformly beats the random walk forecast. Copyright ยฉ 2007 John Wiley & Sons, Ltd.

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