Conventional and unconventional approaches to exchange rate modelling and assessment
Ron Alquist () and
Menzie Chinn ()
International Journal of Finance & Economics, 2008, vol. 13, issue 1, 2-13
We examine the relative predictive power of the sticky price monetary model, uncovered interest parity, and a transformation of net exports and net foreign assets. In addition to bringing Gourinchas and Rey's new approach and more recent data to bear, we implement the Clark-West procedure for testing the significance of out-of-sample forecasts. The interest rate parity relation holds better at long horizons and the net exports variable does well in predicting exchange rates at short horizons in sample. In out-of-sample forecasts, we find evidence that our proxy for Gourinchas and Rey's measure of external imbalances outperforms a random walk at short horizons as do some of the other models, although no single model uniformly beats the random walk forecast. Copyright © 2007 John Wiley & Sons, Ltd.
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Working Paper: Conventional and Unconventional Approaches to Exchange Rate Modeling and Assessment (2006)
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