The Meese-Rogoff Puzzle

Imad A. Moosa and Kelly Burns
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Imad A. Moosa: Monash University
Kelly Burns: Curtin University

Chapter 1 in Demystifying the Meese-Rogoff Puzzle, 2015, pp 1-13 from Palgrave Macmillan

Abstract: Abstract The Meese-Rogoff puzzle refers to the proposition that exchange rate models cannot outperform the random walk in out-of-sample forecasting of exchange rates. This proposition is regarded as a puzzle because it does not make much sense for profit-maximising firms to pay for professional forecasts when the ‘better’ forecasts generated from the random walk are available for free. This proposition is valid only if forecasting accuracy is measured in terms of criteria that depend on the magnitude of the forecasting error only. The origin of the puzzle, the 1983 paper of Meese and Rogoff exhibits many flaws.

Keywords: Exchange Rate; Root Mean Square Error; Random Walk; Forecast Error; Forecast Accuracy (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1057/9781137452481_1

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