 FORECASTING THE UK/US EXCHANGE RATE WITH DIVISIA MONETARY MODELS AND NEURAL NETWORKSRakesh Bissoondeeal, Michail Karoglou and Alicia M. Gazely Scottish Journal of Political Economy, 2011, vol. 58, issue 1, 127-152 Abstract: This paper compares the UK/US exchange rate forecasting performance of linear and nonlinear models based on monetary fundamentals, to a random walk (RW) model. Structural breaks are identified and taken into account. The exchange rate forecasting framework is also used for assessing the relative merits of the official Simple Sum and the weighted Divisia measures of money. Overall, there are four main findings. First, the majority of the models with fundamentals are able to beat the RW model in forecasting the UK/US exchange rate. Second, the most accurate forecasts of the UK/US exchange rate are obtained with a nonlinear model. Third, taking into account structural breaks reveals that the Divisia aggregate performs better than its Simple Sum counterpart. Finally, Divisia-based models provide more accurate forecasts than Simple Sum‐based models provided they are constructed within a nonlinear framework. Date: 2011 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:scotjp:v:58:y:2011:i:1:p:127-152 Ordering information: This journal article can be ordered from Access Statistics for this article Scottish Journal of Political Economy is currently edited by Tim Barmby, Andrew Hughes-Hallett and Campbell Leith More articles in Scottish Journal of Political Economy from Scottish Economic Society Contact information at EDIRC. |
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