Assessment of models to forecast exchange rates: The quetzal–U.S. dollar exchange rate

Carlos Castillo-Maldonado and Fidel Pérez-Macal
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Fidel Pérez-Macal: Banco de Guatemala

Journal of Applied Economics, 2013, vol. 16, 71-99

Abstract: Based on Cheung, Chinn and García-Pascual (2004) and Meese and Rogoff (1983), the forecasting performance of a wide variety of theoretical and empirical exchange rate models (PPP, UIP, flexible and sticky-price monetary models, portfolio balance, and a BEER model) is tested against the random walk specification to determine their assessment in predicting the quetzal–U.S. dollar nominal exchange rate. Such models are estimated by applying a recursive regression methodology to quarterly data for the period 1995-2009. Estimations are performed based on an innovative trend-gap data disaggregation methodology, and an error-correction specification to contrast short vs. long run prediction performance, which is evaluated up to eight periods ahead for all model specifications. Different from previous results, forecasts provided by most specifications in the very short run (up to 2 quarters ahead), particularly the BEER specification, consistently outperform those obtained from the random walk model. An online appendix is available.

Keywords: nominal exchange rate; econometric models; BEER (search for similar items in EconPapers)
JEL-codes: C32 E44 F31 F37 F41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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https://ucema.edu.ar/publicaciones/download/volume16/castillo.pdf paper (application/pdf)
https://ucema.edu.ar/publicaciones/download/volume16/castillo_appendix.pdf Online Appendix (application/pdf)

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Journal Article: Assessment of Models to Forecast Exchange Rates: The Quetzal-U.S. Dollar Exchange Rate (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:16:y:2013:n:1:p:71-99

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