Transcription of CHAPTER V FORECASTING EXCHANGE RATES I. Forecasting ...
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CHAPTER V FORECASTING EXCHANGE RATES One of the goals of studying the behavior of EXCHANGE RATES is to be able to forecast EXCHANGE RATES . Chapters III and IV introduced the main theories used to explain the movement of EXCHANGE RATES . These theories fail to provide a good approximation to the behavior of EXCHANGE RATES . FORECASTING EXCHANGE RATES , therefore, seems to be a difficult task. This CHAPTER analyzes and evaluates the different methods used to forecast EXCHANGE RATES . This CHAPTER closes with a discussion of EXCHANGE rate volatility.
In-sample forecasting does not attempt to forecast the future path of one or several economic variables. In-sample forecasting uses today's information to forecast what today's spot rates should be. That is, we generate a forecast within the sample (in-sample). The fitted values estimated in a regression are in-sample forecasts.
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