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The out-of-sample forecasts of nonlinear long-memory models of the real exchange rate

✍ Scribed by Sang-Kuck Chung

Publisher
John Wiley and Sons
Year
2006
Tongue
English
Weight
336 KB
Volume
11
Category
Article
ISSN
1076-9307

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✦ Synopsis

Abstract

We consider a new time series model that can describe long memory and nonlinearity simultaneously and can be used to assess an extensive evaluation of the out‐of‐sample forecasting performance of the nonlinear long‐memory model. Upon fitting it to the real exchange rate, we find that a parsimonious version of the model captures the salient features of the data rather well. We then use this nonlinear long‐memory model to forecast dynamically out‐of‐sample over the sample period for OECD countries. Overall, we find clear evidence that favours the nonlinear long‐memory model over any other estimated models. Copyright © 2006 John Wiley & Sons, Ltd.

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