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Exchange rate prediction redux: new models, new data, new currencies

Yin-Wong Cheung, Menzie Chinn (), Antonio Garcia Pascual and Yi Zhang

No 2018, Working Paper Series from European Central Bank

Abstract: Previous assessments of nominal exchange rate determination, following Meese and Rogoff (1983) have focused upon a narrow set of models. Cheung et al. (2005) augmented the usual suspects with productivity based models, and "behavioral equilibrium exchange rate" models, and assessed performance at horizons of up to 5 years. In this paper, we further expand the set of models to include Taylor rule fundamentals, yield curve factors, and incorporate shadow rates and risk and liquidity factors. The performance of these models is compared against the random walk benchmark. The models are estimated in error correction and first-difference specifications. We examine model performance at various forecast horizons (1 quarter, 4 quarters, 20 quarters) using differing metrics (mean squared error, direction of change), as well as the JEL Classification: F31, F47

Keywords: behavioral equilibrium exchange rate model; exchange rates; forecasting performance; interest rate parity; monetary model (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for, nep-mon and nep-opm
Date: 2017-02
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Journal Article: Exchange rate prediction redux: New models, new data, new currencies (2019) Downloads
Working Paper: Exchange Rate Prediction Redux: New Models, New Data, New Currencies (2017) Downloads
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