Exchange rate forecasts and expected fundamentals

Christian Dick, Ronald MacDonald and Lukas Menkhoff

Journal of International Money and Finance, 2015, vol. 53, issue C, 235-256

Abstract: Using a large panel of individual professionals' forecasts, this paper demonstrates that good exchange rate forecasts are related to a proper understanding of fundamentals, specifically good interest rate forecasts. This relationship is robust to individual fixed effects and further controls. Reassuringly, the relationship is stronger during phases when the impact from fundamentals is more obvious, e.g., when exchange rates substantially deviate from their PPP values. Finally, forecasters largely agree that an interest rate increase relates to a currency appreciation, but only good forecasters get expected interest rates right.

Keywords: Exchange rate determination; Individual expectations; Macroeconomic fundamentals (search for similar items in EconPapers)
JEL-codes: E44 F31 F37 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (23)

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Working Paper: Exchange rate forecasts and expected fundamentals (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:53:y:2015:i:c:p:235-256

DOI: 10.1016/j.jimonfin.2015.02.002

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