Can Affine Term Structure Models Help Us Predict Exchange Rates?

Antonio Diez de los Rios

Journal of Money, Credit and Banking, 2009, vol. 41, issue 4, 755-766

Abstract: This paper proposes an arbitrage‐free model to extract the information that the term structure of forward premia contains for forecasting future spot exchange rates. Using monthly data on four U.S. dollar bilateral exchange rates, we find evidence that this model provides statistically better forecasts than those produced by a random walk for the British pound and Canadian dollar exchange rates. Negative results for the German mark/Euro and Swiss franc are explained by a rejection of the restrictions imposed by the term structure model.

Date: 2009
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https://doi.org/10.1111/j.1538-4616.2009.00230.x

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Journal Article: Can Affine Term Structure Models Help Us Predict Exchange Rates? (2009)
Working Paper: Can Affine Term Structure Models Help Us Predict Exchange Rates? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:41:y:2009:i:4:p:755-766

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