Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?

Yin-Wong Cheung, Menzie Chinn and Antonio Garcia-Pascual
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Antonio Garcia-Pascual: International Monetary Fund and University of Munich

No 122005, Working Papers from Hong Kong Institute for Monetary Research

Abstract: We re-assess exchange rate prediction using a wider set of models that have been proposed in the last decade: interest rate parity, productivity based models, and a composite specification. The performance of these models is compared against two reference specifications - purchasing power parity and the sticky price monetary model. The models are estimated in first-difference and error correction specifications, and model performance evaluated at forecast horizons of 1, 4 and 20 quarters, using the mean squared error, direction of change metrics, and the "consistency" test of Cheung and Chinn (1998). Overall, model/specification/currency combinations that work well in one period do not necessarily work well in another period.

Keywords: exchange rates; monetary model; productivity; interest rate parity; purchasing power parity; forecasting performance (search for similar items in EconPapers)
JEL-codes: F31 F47 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (511)

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Related works:
Journal Article: Empirical exchange rate models of the nineties: Are any fit to survive? (2005)
Working Paper: Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive? (2004)
Working Paper: Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive? (2003)
Working Paper: Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive? (2003)
Working Paper: Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive? (2003)
Working Paper: Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive? (2002)
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