Empirical Exchange Rate Models of the Nineties : Are Any Fit to Survive?

Author/Editor:

Yin-Wong Cheung ; Antonio Garcia Pascual ; Menzie David Chinn

Publication Date:

April 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We reassess exchange rate prediction using a wider set of models that have been proposed in the last decade. The performance of these models is compared against two reference specifications-purchasing power parity and the sticky-price monetary model. The models are estimated in first-difference and error-correction specifications, and model performance is evaluated at forecast horizons of 1, 4, and 20 quarters, using the mean squared error, direction of change metrics, and the "consistency" test of Cheung and Chinn (1998). Overall, model/specification/currency combinations that work well in one period do not necessarily work well in another period.

Series:

Working Paper No. 04/73

Subject:

English

Publication Date:

April 1, 2004

ISBN/ISSN:

9781451849493/1018-5941

Stock No:

WPIEA0732004

Format:

Paper

Pages:

37

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