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Why is it so difficult to beat the random walk forecast of exchange rates?
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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. doi:10.1016/S0022-1996(02)00060-0 ISSN 0022-1996.
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Official URL: http://dx.doi.org/10.1016/S0022-1996(02)00060-0
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) | ||||
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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: |
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Volume: | 60 | ||||
Number: | 1 | ||||
Number of Pages: | 23 | ||||
Page Range: | pp. 85-107 | ||||
DOI: | 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 |
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