Bayesian forecasting of real exchange rates with a Dornbusch prior

Michele Ca' Zorzi, Andrzej Kocięcki and Michał Rubaszek

Economic Modelling, 2015, vol. 46, issue C, 53-60

Abstract: This paper assesses if a Bayesian VAR with a Dornbusch prior outperforms the random walk model in predicting real exchange rates. Our main contributions are twofold. First, from a methodological point of view we apply an innovative framework to estimate structural Bayesian VAR models. Second, we provide evidence that a VAR with a Dornbusch prior can generate more accurate forecasts for real exchange rates than a standard VAR model based on the random walk prior and the naïve random walk model.

Keywords: Exchange rate forecasting; Structural Bayesian VAR; Dornbusch model (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:46:y:2015:i:c:p:53-60

DOI: 10.1016/j.econmod.2014.10.060

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