Risk Premium Factor and Exchange Rate Forecasting

Ogruk, G. (2013). Risk Premium and Exchange Rate Forecasting. Economics and Finance Review, 3(5), 42-52

Posted: 6 Nov 2017

Date Written: 2013

Abstract

I estimate a dynamic factor from the risk premium of carry trading of bilateral US Dollar against 15 OECD countries and use that factor to augment the macro fundamentals suggested by the Taylor rule, monetary and purchasing power parity models. Meese and Rogoff (1983) show economic models of exchange rates do not outperform the random walk forecast. I find evidence of short term predictability of bilateral exchange rates between 1991 and 2012 with factor augmented macro fundamentals.

Keywords: Exchange Rate Models, Risk Premium, Dynamic Factor, Forecasting

JEL Classification: C22, E32, E37, E43, F31, F37

Suggested Citation

Ogruk-Maz, Gokcen, Risk Premium Factor and Exchange Rate Forecasting (2013). Ogruk, G. (2013). Risk Premium and Exchange Rate Forecasting. Economics and Finance Review, 3(5), 42-52. Available at SSRN: https://ssrn.com/abstract=3065238

Gokcen Ogruk-Maz (Contact Author)

Texas Wesleyan University ( email )

1201 Wesleyan St
Fort Worth, TX 76105
United States

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