Why is it so difficult to beat the random walk forecast of exchange rates?
Kilian, Lutz and Taylor, Mark P. (2003) Why is it so difficult to beat the random walk forecast of exchange rates? In: Conference on Empirical Exchange Rate Models, Madison, Wisconsin, US, 28-29 Sep 2001. Published in: Journal of International Economics, 60 (1). pp. 85-107.Full text not available from this repository.
Official URL: http://dx.doi.org/10.1016/S0022-1996(02)00060-0
Recent empirical evidence suggests that the time series behavior of the real exchange rate is well approximated by a nonlinear, exponential smooth transition autoregressive (ESTAR) model. This nonlinearity helps resolve a number of puzzles concerning the persistence and volatility of real exchange rates. In this paper, we explore whether it may also help resolve the well-known difficulties of exchange rate forecasting. We develop a bootstrap test of the random walk hypothesis of the nominal exchange rate, given ESTAR real exchange rate dynamics. We find strong evidence of predictability at horizons of 2 to 3 years, but not at shorter 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|
|Number of Pages:||23|
|Page Range:||pp. 85-107|
|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|
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