 Unpredictable After All? A short note on exchange rate predictabilityGerard Moerman ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam Abstract: Earlier research has shown that it is very hard to outperform the random walk model with respect to forecasting exchange rates. In this paper we propose an extension to the regular regime-switching model in order to capture the exchange rate dynamics. The model is extended by including macro-economic variables, like inflation and interest rates, into both regimes. The regimes not only have different means and volatility's, but also different sensitivities to the macro-economic variables. We will show that this approach doesn't work over the whole sample, although previous research work might indicate otherwise. Furthermore we will elaborate on sub samples, in which the model showed a better performance than the random walk model, and show that this is rather coincidence. Keywords: econometrics; economic variables; exchange rates; forecasting; regime-switching model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ems:eureri:91 Access Statistics for this paper More papers in ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam Contact information at EDIRC. |
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