75 Pages Posted: 27 Aug 2013
Date Written: July 14, 2013
The main goal of this article is to provide an answer to the question: "Does anything forecast exchange rates, and if so, which variables?". It is well known that exchange rate fluctuations are very difficult to predict using economic models, and that a random walk forecasts exchange rates better than any economic model (the Meese and Rogoff puzzle). However, the recent literature has identified a series of fundamentals/methodologies that claim to have resolved the puzzle. This article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up-to-date, thorough empirical analysis.
Keywords: Exchange Rates, Forecasting, Instability, Forecast Evaluation
JEL Classification: F3, C5
Suggested Citation: Suggested Citation
By Lutz Kilian