Real Exchange‐Rate Prediction over Short Horizons

Jyh‐Lin Wu and Show‐Lin Chen

Review of International Economics, 2001, vol. 9, issue 3, 401-413

Abstract: The objective of this paper is to examine the predictability of real exchange rates during the period following Bretton Wood. The uniqueness of the model is that it allows for time‐varying‐coefficient and Markov‐switching eteroskedasticity. Evidence is provided to show that the model, with appropriate specification, is superior to the random walk in terms of out‐of‐sample redictability even when forecast horizons are short.

Date: 2001
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