On Fundamentals And Exchange Rates: A Casselian Perspective

Ronald MacDonald and Ian Marsh ()

The Review of Economics and Statistics, 1997, vol. 79, issue 4, 655-664

Abstract: Using an expanded version of the purchasing-power-parity condition we construct simultaneous equation models for three key exchange rates which incorporate meaningful long-run equilibrium relationships and complex short-run dynamics. We show that fully dynamic out-of-sample forecasts from these models are capable of significantly outperforming those of a random walk model over horizons as short as 3 months, and that they are also more accurate than the vast majority of professional forecasts. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 1997
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