Conventional and Unconventional Approaches to Exchange Rate Modeling and Assessment

Menzie Chinn and Ron Alquist

No 12481, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the relative predictive power of the sticky price monetary model, uncovered interest parity, and a transformation of net exports and net foreign assets. In addition to bringing Gourinchas and Rey's new approach and more recent data to bear, we implement the Clark and West (forthcoming) procedure for testing the significance of out-of-sample forecasts. The interest rate parity relation holds better at long horizons and the net exports variable does well in predicting exchange rates at short horizons in-sample. In out-of-sample forecasts, we find evidence that our proxy for Gourinchas and Rey's measure of external imbalances outperforms a random walk at short horizons as do some of other models, although no single model uniformly outperforms the random walk forecast.

JEL-codes: F31 F47 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-fmk, nep-for, nep-ifn and nep-mon
Note: IFM
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Citations: View citations in EconPapers (17)

Published as Ron Alquist & Menzie D. Chinn, 2008. "Conventional and unconventional approaches to exchange rate modelling and assessment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 2-13.

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Journal Article: Conventional and unconventional approaches to exchange rate modelling and assessment (2008)
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