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Comparing Forecast Performance of Exchange Rate …
Working Paper 08/2008 June 2008 Comparing Forecast Performance OF Exchange RATE MODELS Prepared by Lillie Lam, Laurence Fung and Ip-wing Yu1 Research Department Abstract Exchange -rate movement is regularly monitored by central banks for macroeconomic- analysis and market-surveillance purposes. Notwithstanding the pioneering study of Meese and Rogoff (1983), which shows the superiority of the random-walk model in out-of-sample Exchange -rate Forecast , there is some evidence that Exchange -rate movement may be predictable at longer time horizons. This study compares the Forecast Performance of the Purchasing Power Parity model, Uncovered Interest Rate Parity model, Sticky Price Monetary model, the model based on the Bayesian Model Averaging technique, and a combined Forecast of all the above models with benchmarks given by the random-w
- 3 - I. INTRODUCTION Exchange rate movement is an important subject of macroeconomic analysis and market surveillance. Despite its …
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