Point, interval and density forecasts of exchange rates with time-varying parameter models

Angela Abbate () and Massimiliano Marcellino

No 19/2016, Discussion Papers from Deutsche Bundesbank

Abstract: We explore whether modelling parameter time variation improves the point, interval and density forecasts of nine major exchange rates vis-a-vis the US dollar over the period 1976-2015. We find that modelling parameter time variation is needed for an accurate calibration of forecast confidence intervals, and is better suited at long horizons and in high-volatility periods. The biggest forecast improvements are obtained by modelling time variation in the volatilities of the innovations, rather than in the slope parameters. Moreover, we do not find evidence that parameter time variation helps to unravel exchange rate predictability by macroeconomic fundamentals. Finally, an economic evaluation of the different forecast models reveals that controlling for parameter time variation leads to higher portfolios returns, and to higher utility values for investors.

Keywords: exchange rates; forecasting; density forecasts; BVAR; time-varying parameters (search for similar items in EconPapers)
JEL-codes: C11 C53 F31 F37 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-for and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/142220/1/861814746.pdf (application/pdf)

Related works:
Journal Article: Point, interval and density forecasts of exchange rates with time varying parameter models (2018)
Working Paper: Point, interval and density forecasts of exchange rates with time-varying parameter models (2016)
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:zbw:bubdps:192016

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().