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The predictive information content of external imbalances for exchange rate returns : how much is it worth?
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Della Corte, Pasquale, Sarno, Lucio and Sestieri, Giulia (2012) The predictive information content of external imbalances for exchange rate returns : how much is it worth? Review of Economics and Statistics, Vol.94 (No.1). pp. 100-115. doi:10.1162/REST_a_00157
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Official URL: http://dx.doi.org/10.1162/REST_a_00157
Abstract
This paper examines the exchange rate predictability stemming from the equilibrium model of international financial adjustment developed by Gourinchas and Rey (2007). Using predictive variables that measure cyclical external imbalances for country pairs, we assess the ability of this model to forecast out-of-sample four major US dollar exchange rates using various economic criteria of model evaluation. The analysis shows that the model provides economic value to a risk-averse investor, delivering substantial utility gains when switching from a portfolio strategy based on the random walk benchmark to one that conditions on cyclical external imbalances.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HG Finance | ||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | Review of Economics and Statistics | ||||
| Publisher: | MIT Press | ||||
| ISSN: | 0034-6535 | ||||
| Official Date: | 2012 | ||||
| Dates: |
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| Volume: | Vol.94 | ||||
| Number: | No.1 | ||||
| Number of Pages: | 16 | ||||
| Page Range: | pp. 100-115 | ||||
| DOI: | 10.1162/REST_a_00157 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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