Can We Beat the Random Walk? The Case of Survey-Based Exchange Rate Forecasts in Chile

27 Pages Posted: 27 Dec 2018

See all articles by Pablo M. Pincheira

Pablo M. Pincheira

Adolfo Ibanez University - School of Business

Federico Neumann

Adolfo Ibanez University

Date Written: December 9, 2018

Abstract

We examine the accuracy of survey-based expectations of the Chilean exchange rate relative to the US dollar. Our out-of-sample analysis reveals that survey-based forecasts outperform the Driftless Random Walk (DRW) in terms of Mean Squared Prediction Error at several forecasting horizons. This result holds true even when comparing the survey to a more competitive benchmark based on a refined information set. A similar result is found when precision is measured in terms of Directional Accuracy: survey-based forecasts outperform a “pure luck” benchmark at several forecasting horizons. Differing from the traditional “no predictability” result reported in the literature for many exchange rates, our findings suggest that the Chilean peso is indeed predictable.

Keywords: Survey Expectations, Exchange Rates, Forecasting, Random Walk, Directional Accuracy, Mean Squared Prediction Error

JEL Classification: C01, C32, C52, C53, C58, G17, G11, E270, E370, F370, L740, O180, R310

Suggested Citation

Pincheira, Pablo M. and Neumann, Federico, Can We Beat the Random Walk? The Case of Survey-Based Exchange Rate Forecasts in Chile (December 9, 2018). Available at SSRN: https://ssrn.com/abstract=3298184 or http://dx.doi.org/10.2139/ssrn.3298184

Pablo M. Pincheira (Contact Author)

Adolfo Ibanez University - School of Business ( email )

Diagonal Las Torres 2640
Peñalolén
Santiago
Chile

Federico Neumann

Adolfo Ibanez University ( email )

Diagonal Las Torres 2640 Peñaleón
Presidente Errázuriz 3485 Las Condes
Santiago, 794-1169
Chile

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