Predictable Movements in Yen/DM Exchange Rates

Author/Editor:

Janet Kong

Publication Date:

August 1, 2000

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:

This paper examines the relevance of PPP, the adjustment channel of real exchange rate and the predictability of the movement in nominal exchange rate by studying the behavior of yen/DM exchange rate, using cointegration method. Results support PPP and find that the real exchange rate is mean-reverting. The change in the nominal exchange rate exhibits significant auto-regressive property. These findings imply that movements in the nominal yen/DM exchange rate is actually predictable. The error-correction model and a simple first order autoregressive model both outperform the random walk model in out-of-sample forecasting.

Series:

Working Paper No. 2000/143

Subject:

English

Publication Date:

August 1, 2000

ISBN/ISSN:

9781451856330/1018-5941

Stock No:

WPIEA1432000

Pages:

36

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