Concluding Remarks

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

Chapter 11 in Demystifying the Meese-Rogoff Puzzle, 2015, pp 126-136 from Palgrave Macmillan

Abstract: Abstract The Meese-Rogoff puzzle should not be considered a puzzle, and exchange rate models should not be expected to outperform the random walk in terms of magnitude-only measures of forecasting accuracy. The superior performance of the random walk in terms of the RMSE and similar criteria should be expected because the forecasting error of the random walk is the period-to-period change in the exchange rate, which is typically small. The Meese and Rogoff findings cannot be overturned, but only in the narrow sense that exchange rate models cannot produce a numerically smaller and statistically different magnitude of error compared to the random walk. The only plausible explanation for the Meese-Rogoff puzzle is that forecasting accuracy is assessed exclusively by the magnitude of error.

Keywords: Exchange Rate; Random Walk; Forecast Error; Forecast Accuracy; Macroeconomic Variable (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-45248-1_11

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DOI: 10.1057/9781137452481_11

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