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.

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Abstract

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
Publisher:	Elsevier BV
ISSN:	0022-1996
Official Date:	2003
Dates:	Date Event 2003 Published
Volume:	60
Number:	1
Number of Pages:	23
Page Range:	pp. 85-107
Identification Number:	10.1016/S0022-1996(02)00060-0
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
URI:	http://wrap.warwick.ac.uk/id/eprint/9761

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