Simultaneous Equation Bias

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

Chapter 8 in Demystifying the Meese-Rogoff Puzzle, 2015, pp 98-104 from Palgrave Macmillan

Abstract: Abstract Simultaneous equation bias, which arises as a result of endogeneity of the explanatory variables, has been suggested as an explanation for the Meese-Rogoff puzzle. Endogeneity of macroeconomic variables may arise from the possibility of monetary policy feedback in the monetary model, which means that a model that incorporates endogeneity should produce better forecasts in terms of the magnitude of error. However, we find, with one exception, that the VAR models corresponding to the Frenkel-Bilson, Dornbusch-Frankel and Hooper-Morton static models do not produce significantly smaller RMSEs than that of the random walk.

Keywords: Exchange Rate; Random Walk; Real Exchange Rate; Simultaneous Equation; Sharpe Ratio (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_8

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DOI: 10.1057/9781137452481_8

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