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Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?
Author:
Yin-Wong Cheung null

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Menzie David Chinn null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 073
Language:
English
Publication Date:
01 Apr 2004
DOI:
https://doi.org/10.5089/9781451849493.001
ISBN:
9781451849493
ISSN:
1018-5941
Pages:
37
Keywords:
WP; random walk; price level; mover accent; forecasting performance; exchange rates; monetary model; productivity; interest rate parity; purchasing power parity; interest rate parity model; dollar-yen exchange rate; U.S. dollar; MSE ratio; dollar exchange rate movement; two-step procedure; Exchange rate modelling; Interest rate modelling
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We reassess exchange rate prediction using a wider set of models that have been proposed in the last decade. The performance of these models is compared against two reference specifications-purchasing power parity and the sticky-price monetary model. The models are estimated in first-difference and error-correction specifications, and model performance is evaluated at forecast horizons of 1, 4, and 20 quarters, using the mean squared error, direction of change metrics, and the "consistency" test of Cheung and Chinn (1998). Overall, model/specification/currency combinations that work well in one period do not necessarily work well in another period.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund