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The Continuing Puzzle of Short Horizon Exchange Rate Forecasting

Kenneth Rogoff () and Vania Stavrakeva ()

No 14071, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Are structural models getting closer to being able to forecast exchange rates at short horizons? Here we argue that misinterpretation of some new out-of-sample tests for nested models, over-reliance on asymptotic test statistics, and failure to sufficiently check robustness to alternative time windows have led many studies to overstate even the relatively thin positive results that have been found. We find that by allowing for common cross-country shocks in our panel forecasting specification, we are able to generate some improvement, but even that improvement is not entirely robust to the forecast window, and much of the gain appears to come from non-structural rather than structural factors.

JEL-codes: C52 C53 F31 F47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-for, nep-ifn, nep-mon and nep-opm
Date: 2008-06
Note: IFM ME
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