A Reconsideration of the Meese-Rogoff Puzzle: An Alternative Approach to Model Estimation and Forecast Evaluation

Kelly Burns ()
Additional contact information
Kelly Burns: Curtin University, Australia

Multinational Finance Journal, 2016, vol. 20, issue 1, 41-83

Abstract: This study revisits the Meese-Rogoff puzzle by estimating the traditional monetary models of exchange rate determination in state-space form and comparing the accuracy of these forecasts against the naïve random walk model using a wide range of conventional and alternative measures of forecasting accuracy. The results demonstrate that incorporating stochastic movements in the parameters of exchange rate models does not enable the Meese-Rogoff puzzle to be overturned. However, estimating these models in state-space form substantially improves forecasting accuracy to the extent that the model and random walk produce an equivalent magnitude of error. Furthermore, the results prove that the Meese-Rogoff puzzle can be overturned if the forecasts are evaluated by alternative criteria. These criteria include direction accuracy, profitability, and measures that jointly take into account both magnitude and direction accuracy.

Keywords: forecasting; random walk; exchange rate models; time-varying parameters (search for similar items in EconPapers)
JEL-codes: C53 F31 F37 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.mfsociety.org/modules/modDashboard/uplo ... o1pn216llm9sjaj4.pdf (application/pdf)
http://www.mfsociety.org/modules/modDashboard/uplo ... gleScholar/1103.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:20:y:2016:i:1:p:41-83

Access Statistics for this article

Multinational Finance Journal is currently edited by Panayiotis C. Andreou

More articles in Multinational Finance Journal from Multinational Finance Journal Contact information at EDIRC.
Bibliographic data for series maintained by Theodossiou Panayiotis ().