The Predictability of Real Exchange Rate Changes in the Short and Long Run

40 Pages Posted: 29 Jun 2010

See all articles by Robert E. Cumby

Robert E. Cumby

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

John P. Huizinga

University of Chicago - Booth School of Business

Date Written: October 1990

Abstract

Nominal exchange rates do not move to offset differences in inflation rates on a month to month, quarter to quarter, or even year to year basis, resulting in sizable real exchange rate changes. Are these changes predictable? We address this question in three ways. First, we describe a variety of tests of predictability and explain how the different tests are related. Next, we implement the tests for the U.S. dollar relative to four currencies and find statistically significant evidence that real exchange rate changes are predictable. Finally, we examine whether the predictability is of an economically interesting magnitude.

Suggested Citation

Cumby, Robert E. and Huizinga, John, The Predictability of Real Exchange Rate Changes in the Short and Long Run (October 1990). NBER Working Paper No. w3468. Available at SSRN: https://ssrn.com/abstract=1631146

Robert E. Cumby (Contact Author)

Georgetown University - Department of Economics ( email )

580 Intercultural Center
Washington, DC 20057
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National Bureau of Economic Research (NBER)

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John Huizinga

University of Chicago - Booth School of Business ( email )

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United States
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773-702-2225 (Fax)

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