Predictable Movements in Yen/DM Exchange Rates
August 1, 2000
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: 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.
Subject: Exchange rates, Export price indexes, Foreign exchange, Prices, Purchasing power parity, Real exchange rates, Wholesale price indexes
Keywords: auto regression, deutsche mark, exchange rate, exchange rate forecast, Exchange rates, exchange-rate movement, export price index, Export price indexes, long-run PPP, market PPP hypothesis, PPP, PPP exchange rate, Purchasing power parity, Real exchange rates, Wholesale price indexes, WP
Pages:
36
Volume:
2000
DOI:
Issue:
143
Series:
Working Paper No. 2000/143
Stock No:
WPIEA1432000
ISBN:
9781451856330
ISSN:
1018-5941
