Exchange Rate Predictability

75 Pages Posted: 27 Aug 2013  

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 14, 2013

Abstract

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

Rossi, Barbara, Exchange Rate Predictability (July 14, 2013). CAFE Research Paper No. 13.16. Available at SSRN: https://ssrn.com/abstract=2316312 or http://dx.doi.org/10.2139/ssrn.2316312

Barbara Rossi (Contact Author)

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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