The impact of uncertainty on professional exchange rate forecasts

Joscha Beckmann and Robert Czudaj

No 637, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This paper analyzes the role of uncertainty on both exchange rate expectations and forecast errors of professionals for four major currencies based on survey data provided by FX4casts. We consider economic policy, macroeconomic, and financial uncertainty as well as disagreement among CPI inflation forecasters to account for different dimensions of uncertainty. Based on a Bayesian VAR approach, we observe that effects on forecast errors of professionals turn out to be more significant compared to the adjustment of exchange rate expectations. Our findings are robust to different forecasting horizons and point to an unpredictable link between exchange rates and fundamentals. Furthermore, we illustrate the importance of considering common unpredictable components for a large number of variables. We also focus on the post-crisis period and the relationship between uncertainty and disagreement among exchange rate forecasters and identify a strong relationship between them.

Keywords: Bayesian VAR; exchange rates; expectations; forecast; uncertainty (search for similar items in EconPapers)
JEL-codes: F31 F37 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-for and nep-mon
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The impact of uncertainty on professional exchange rate forecasts (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:637

DOI: 10.4419/86788741

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