Can Macroeconomists Get Rich Forecasting Exchange Rates?

Mauro Costantini, Jesus Crespo Cuaresma and Jaroslava Hlouskova

No 305, Economics Series from Institute for Advanced Studies

Abstract: We provide a systematic comparison of the out-of-sample forecasts based on multivariate macroeconomic models and forecast combinations for the euro against the US dollar, the British pound, the Swiss franc and the Japanese yen. We use profit maximization measures based on directional accuracy and trading strategies in addition to standard loss minimization measures. When comparing predictive accuracy and profit measures, data snooping bias free tests are used. The results indicate that forecast combinations help to improve over benchmark trading strategies for the exchange rate against the US dollar and the British pound, although the excess return per unit of deviation is limited. For the euro against the Swiss franc or the Japanese yen, no evidence of generalized improvement in profit measures over the benchmark is found.

Keywords: Exchange rate forecasting; Forecast combination; Multivariate time series models; Profitability (search for similar items in EconPapers)
JEL-codes: C53 F31 F37 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-09
New Economics Papers: this item is included in nep-for, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://irihs.ihs.ac.at/id/eprint/2907 First version, 2014 (application/pdf)

Related works:
Working Paper: Can Macroeconomists Get Rich Forecasting Exchange Rates? (2014)
Working Paper: Can Macroeconomists Get Rich Forecasting Exchange Rates? (2014)
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