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The out-of-sample success of term structure models as exchange rate predictors : a step beyond
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Clarida, Richard H., Sarno, Lucio, Taylor, Mark P. and Valente, Giorgio (2001) The out-of-sample success of term structure models as exchange rate predictors : a step beyond. In: Conference on Empirical Exchange Rate Models, Madison, Wisconsin, US, 28-29 Sep 2001. Published in: Journal of International Economics, 60 (1). pp. 61-83. ISSN 0022-1996. doi:10.1016/S0022-1996(02)00059-4
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Official URL: http://dx.doi.org/10.1016/S0022-1996(02)00059-4
Abstract
A large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate. However, there is evidence that the term structure of forward premia contains valuable information for forecasting future spot exchange rates and that exchange rate dynamics display nonlinearities. This paper proposes a term-structure forecasting model of exchange rates based on a regime-switching vector equilibrium correction model which is novel in this context. Our model significantly outperforms both a random walk and, to a lesser extent, a linear term-structure vector equilibrium correction model for four major dollar rates across a range of horizons. (C) 2002 Elsevier Science B.V. All rights reserved.
| Item Type: | Conference Item (Paper) | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||
| Journal or Publication Title: | Journal of International Economics | ||||
| Publisher: | Elsevier BV | ||||
| ISSN: | 0022-1996 | ||||
| Official Date: | 2001 | ||||
| Dates: |
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| Volume: | 60 | ||||
| Number: | 1 | ||||
| Number of Pages: | 23 | ||||
| Page Range: | pp. 61-83 | ||||
| Identifier: | 10.1016/S0022-1996(02)00059-4 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access | ||||
| Conference Paper Type: | Paper | ||||
| Title of Event: | Conference on Empirical Exchange Rate Models | ||||
| Type of Event: | Conference | ||||
| Location of Event: | Madison, Wisconsin, US | ||||
| Date(s) of Event: | 28-29 Sep 2001 |
Data sourced from Thomson Reuters' Web of Knowledge
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