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Real Exchange‐Rate Prediction over Short Horizons
Author(s) -
Wu JyhLin,
Chen ShowLin
Publication year - 2001
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00288
Subject(s) - predictability , random walk , economics , econometrics , uniqueness , markov chain , exchange rate , sample (material) , mathematics , statistics , monetary economics , thermodynamics , physics , mathematical analysis
The objective of this paper is to examine the predictability of real exchange rates during the period following Bretton Wood. The uniqueness of the model is that it allows for time‐varying‐coefficient and Markov‐switching eteroskedasticity. Evidence is provided to show that the model, with appropriate specification, is superior to the random walk in terms of out‐of‐sample redictability even when forecast horizons are short.