The Continuing Puzzle of Short Horizon Exchange Rate Forecasting

41 Pages Posted: 27 Jun 2008

See all articles by Kenneth Rogoff

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Vania Stavrakeva

Harvard University

Date Written: June 2008

Abstract

Are structural models getting closer to being able to forecast exchange rates at short horizons? Here we argue that misinterpretation of some new out-of-sample tests for nested models, over-reliance on asymptotic test statistics, and failure to sufficiently check robustness to alternative time windows have led many studies to overstate even the relatively thin positive results that have been found. We find that by allowing for common cross-country shocks in our panel forecasting specification, we are able to generate some improvement, but even that improvement is not entirely robust to the forecast window, and much of the gain appears to come from non-structural rather than structural factors.

Suggested Citation

Rogoff, Kenneth S. and Stavrakeva, Vania, The Continuing Puzzle of Short Horizon Exchange Rate Forecasting (June 2008). NBER Working Paper No. w14071. Available at SSRN: https://ssrn.com/abstract=1152245

Kenneth S. Rogoff (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
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Cambridge, MA 02138
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Vania Stavrakeva

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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