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Exchange rates and fundamentals : evidence on the economic value of predictability
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Abhyankar, Abhay , Sarno, Lucio and Valente, Giorgio (2005) Exchange rates and fundamentals : evidence on the economic value of predictability. Journal of International Economics, 66 (2). pp. 325-348. doi:10.1016/j.jinteco.2004.09.003
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Official URL: http://dx.doi.org/10.1016/j.jinteco.2004.09.003
Abstract
A major puzzle in international finance is the well-documented inability of models based on monetary fundamentals to produce better out-of-sample forecasts of the nominal exchange rate than a naive random walk. While this literature has generally employed statistical measures of forecast accuracy, we investigate whether there is any economic value to the predictive power of monetary fundamentals for the exchange rate. We find that, in the context of a simple asset allocation problem, the economic value of exchange rate forecasts from a fundamentals model can be greater than the economic value of random walk forecasts across a range of horizons. (c) 2004 Elsevier B.V. All rights reserved.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
| Divisions: | Faculty of Social Sciences > Economics | ||||
| Journal or Publication Title: | Journal of International Economics | ||||
| Publisher: | Elsevier BV | ||||
| ISSN: | 0022-1996 | ||||
| Official Date: | July 2005 | ||||
| Dates: |
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| Volume: | 66 | ||||
| Number: | 2 | ||||
| Number of Pages: | 24 | ||||
| Page Range: | pp. 325-348 | ||||
| DOI: | 10.1016/j.jinteco.2004.09.003 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published |
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