Fundamentals, forecast combinations and nominal exchange-rate predictability

Jyh-Lin Wu and Yi-Chiuan Wang

International Review of Economics & Finance, 2013, vol. 25, issue C, 129-145

Abstract: This paper investigates the out-predictability of fundamentals and forecast combinations. By adopting a panel-based specification, the paper obtains several interesting results. First, the Taylor-rule-based fundamental is the best among the four different fundamentals under consideration in out-of-sample contests. It provides strong evidence to out-predict the random walk over the PBW period. Second, relative to a single-equation prediction, panel predictions are generally able to enhance the statistical significance of beating the random walk. Third, combining forecasts from different fundamentals that have relatively strong out-predictability at a specific horizon does enhance both the statistical and economic significances of beating the random walk for the PBW period at short horizons.

Keywords: Fundamentals; Forecast combinations; Random walks; Out-of-sample forecasts; Economic significance (search for similar items in EconPapers)
JEL-codes: F31 F47 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:25:y:2013:i:c:p:129-145

DOI: 10.1016/j.iref.2012.07.002

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