EconPapers    
Economics at your fingertips  
 

Factor Model Forecasts of Exchange Rates

Nelson Mark

No 12, Working Papers from University of Notre Dame, Department of Economics

Abstract: We construct factors from a cross section of exchange rates and use the idiosyncratic deviations from the factors to forecast. In a stylized data generating process, we show that such forecasts can be effective even if there is essentially no serial correlation in the univariate exchange rate processes. We apply the technique to a panel of bilateral U.S. dollar rates against 17 OECD countries. We forecast using factors, and using factors combined with any of fundamentals suggested by Taylor rule, monetary and purchasing power parity (PPP) models. For long horizon (8 and 12 quarter) forecasts, we tend to improve on the forecast of a ³no change² benchmark in the late (1999-2007) but not early (1987-1998) parts of our sample.

Keywords: Exchange Rates; Factor Models; Forecasting (search for similar items in EconPapers)
JEL-codes: F31 F37 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2008-11, Revised 2012-01
References: Add references at CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://www3.nd.edu/~tjohns20/RePEc/deendus/wpaper/012_rates.pdf First version, 2012 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www3.nd.edu/~tjohns20/RePEc/deendus/wpaper/012_rates.pdf [301 Moved Permanently]--> https://www3.nd.edu:443/~tjohns20/RePEc/deendus/wpaper/012_rates.pdf)

Related works:
Journal Article: Factor Model Forecasts of Exchange Rates (2015) Downloads
Working Paper: Factor Model Forecasts of Exchange Rates (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nod:wpaper:012

Access Statistics for this paper

More papers in Working Papers from University of Notre Dame, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Terence Johnson ( this e-mail address is bad, please contact ).

 
Page updated 2024-09-06
Handle: RePEc:nod:wpaper:012