{
  "title": "Medium-Term Exchange Rate Forecasting: What Can We Expect?",
  "publication": "IMF Working Papers, January 1, 2003",
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  "summary": "The medium-term predictability of exchange rate movements is examined using three models of fundamentals: purchasing power parity, the monetary model, and uncovered interest parity.",
  "sections": [
    {
      "heading": "Summary of research question and models",
      "content": "- Examines the medium-term predictability of exchange rate movements using three models of fundamentals:\n  - purchasing power parity\n  - the monetary model\n  - uncovered interest parity"
    },
    {
      "heading": "Main empirical findings",
      "content": "- Purchasing power parity and the monetary model:\n  - Yield favorable in-sample results.\n  - These in-sample results largely reflect finite-sample estimation biases.\n  - After adjusting for finite-sample biases, there is little evidence of predictability.\n- Out-of-sample forecasting performance:\n  - There is a lack of systematic improvement in out-of-sample forecasting performance relative to a random walk.\n- Uncovered interest parity:\n  - Fares better at long horizons.\n  - Reflects information already embodied in market prices and therefore may not be useful as an indicator of exchange rate misalignment."
    },
    {
      "heading": "Interpretation and implications",
      "content": "- The apparent predictability from simpler fundamentals models can be driven by finite-sample biases rather than true forecasting power.\n- Models that appear successful in-sample should be assessed for finite-sample biases before inferring medium-term predictability.\n- Even when a model (uncovered interest parity) performs better at long horizons, its usefulness as a misalignment indicator is limited if it merely reflects market prices."
    },
    {
      "heading": "Cautions and recommendations for future work",
      "content": "- More elaborate models of fundamentals might have better medium-term forecasting properties.\n- Careful attention must be paid to finite-sample biases in assessing predictability.\n\n---\n\n Content in this bundle\n\n- Medium-Term Exchange Rate Forecasting:  What Can We Expect? - WP/03/21\n  - Medium-Term Exchange Rate Forecasting:  What Can We Expect? - WP/03/21 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Medium-Term Exchange Rate Forecasting:  What Can We Expect? - WP/03/21 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/medium-term-exchange-rate-forecasting-what-can-we-expect-16272"
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    "Authors: Guy M Meredith",
    "Published: January 1, 2003",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451843934.001",
    "Examines the medium-term predictability of exchange rate movements using three models of fundamentals:",
    "Purchasing power parity and the monetary model:",
    "Out-of-sample forecasting performance:",
    "Uncovered interest parity:",
    "The apparent predictability from simpler fundamentals models can be driven by finite-sample biases rather than true forecasting power.",
    "Models that appear successful in-sample should be assessed for finite-sample biases before inferring medium-term predictability.",
    "Even when a model (uncovered interest parity) performs better at long horizons, its usefulness as a misalignment indicator is limited if it merely reflects market prices.",
    "More elaborate models of fundamentals might have better medium-term forecasting properties.",
    "Careful attention must be paid to finite-sample biases in assessing predictability.",
    "**Medium-Term Exchange Rate Forecasting:  What Can We Expect? - WP/03/21**"
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