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Out Of Sample Exchange Rate Predictability With Taylor Rule Fundamentals
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Book Synopsis Taylor Rule Deviations and Out-of-Sample Exchange Rate Predictability by : Onur Ince
Download or read book Taylor Rule Deviations and Out-of-Sample Exchange Rate Predictability written by Onur Ince and published by . This book was released on 2019 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Taylor rule has become the dominant model for academic evaluation of out-of-sample exchange rate predictability. Two versions of the Taylor rule model are the Taylor rule fundamentals model, where the variables that enter the Taylor rule are used to forecast exchange rate changes, and the Taylor rule differentials model, where a Taylor rule with postulated coefficients is used in the forecasting regression. We use data from 1973 to 2014 to evaluate short-run out-of-sample predictability for eight exchange rates vis-à-vis the U.S. dollar, and find strong evidence in favor of the Taylor rule fundamentals model alternative against the random walk null. The evidence of predictability is weaker with the Taylor rule differentials model, and still weaker with the traditional interest rate differential, purchasing power parity, and monetary models. The evidence of predictability for the fundamentals model is not related to deviations from the original Taylor rule for the U.S., but is related to deviations from a modified Taylor rule for the U.S. with a higher coefficient on the output gap. The evidence of predictability is also unrelated to deviations from Taylor rules for the foreign countries and adherence to the Taylor principle for the U.S.
Book Synopsis Out-of-Sample Exchange Rate Predictability with Taylor Rule Fundamentals by : Tanya Molodtsova
Download or read book Out-of-Sample Exchange Rate Predictability with Taylor Rule Fundamentals written by Tanya Molodtsova and published by . This book was released on 2009 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: An extensive literature that studied the performance of empirical exchange rate models following Meese and Rogoff's (1983a) seminal paper has not convincingly found evidence of out-of-sample exchange rate predictability. This paper extends the conventional set of models of exchange rate determination by investigating predictability of models that incorporate Taylor rule fundamentals. We find evidence of short term predictability for 11 out of 12 currencies vis-a-vis the U.S. dollar over the post-Bretton Woods float, with the strongest evidence coming from specifications that incorporate heterogeneous coefficients and interest rate smoothing. The evidence of predictability is much stronger with Taylor rule models than with conventional interest rate, purchasing power parity, or monetary models.
Book Synopsis Out-of-sample Exchange Rate Predictability with Taylor Rule Fundamentals and Real-time Data by : Tetyana Molodtsova
Download or read book Out-of-sample Exchange Rate Predictability with Taylor Rule Fundamentals and Real-time Data written by Tetyana Molodtsova and published by . This book was released on 2008 with total page 240 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Out-of-Sample Exchange Rate Predictability with Real-Time Data by : Onur Ince
Download or read book Out-of-Sample Exchange Rate Predictability with Real-Time Data written by Onur Ince and published by . This book was released on 2019 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper evaluates short-run out-of-sample exchange rate predictability with real-time data for 15 OECD countries from 1973 to 2013. We consider the Taylor rule fundamentals model, where the variables that enter the Taylor rule are used to forecast exchange rate changes, and the Taylor rule differentials model, where a Taylor rule with postulated coefficients is used in the forecasting regression. We find evidence of predictability with the Taylor rule fundamentals model for 9 out of 15 countries. The Taylor rule differentials model performs worse, and the evidence of predictability is the weakest with the conventional monetary and PPP models.
Book Synopsis Taylor Rule Deviations and Out-of-sample Exchange Rate Predictability by : Onur Ince
Download or read book Taylor Rule Deviations and Out-of-sample Exchange Rate Predictability written by Onur Ince and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Exchange Rate Predictability Including Taylor Rule Fundamentals by : Anne E. Hannusch
Download or read book Exchange Rate Predictability Including Taylor Rule Fundamentals written by Anne E. Hannusch and published by . This book was released on 2010 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: An extensive literature has studied the out-of-sample forecasting performance of empirical exchange rate models. Despite the application of advanced econometric methods and the maturation of the floating exchange rate era, the results of Meese and Rogoff (1983a) stand up remarkably well: fundamental exchange rate models are not able to outperform a random walk. This phenomenon became known as the exchange rate disconnect puzzle. Molodtsova and Papell (2009) challenge these results by incorporating Taylor rule fundamentals into a structural exchange rate model. Rolling regressions are used to produce the one-month ahead forecasts. Looking at the Clark and West statistic, they find that the model is able to outperform a driftless random walk for 10 out of 12 currencies against the U.S. dollar. By revisiting the Molodtsova and Papell (2009) study, I find that the results are sensitive to the underlying in-sample size that is used to estimate rolling regressions and generate the one-month ahead predictions. However, the single-country regression procedure, as applied by Molodtsova and Papell (2009), performs very well when applied to an updated and revised data set. Panel regressions produce consistent results across both data sets as well, thereby suggesting that the model is robust to data revision and extension as well as different econometric techniques. However, the results remain sensitive to the varying in-sample size. Hence, systematical testing for multiple structural breaks appears to be the key issue to find robust evidence of exchange rate predictability.
Book Synopsis The Taylor Rule and Interval Forecast for Exchange Rates by : Jian Wang
Download or read book The Taylor Rule and Interval Forecast for Exchange Rates written by Jian Wang and published by . This book was released on 2009 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This paper attacks the Meese-Rogoff puzzle from a different perspective: out-of-sample interval forecasting. Most studies in the literature focus on point forecasts. In this paper, we apply Robust Semiparametric (RS) interval forecasting to a group of Taylor rule models. Forecast intervals for twelve OECD exchange rates are generated and modified tests of Giacomini and White (2006) are conducted to compare the performance of Taylor rule models and the random walk. Our contribution is twofold. First, we find that in general, Taylor rule models generate tighter forecast intervals than the random walk, given that their intervals cover out-of-sample exchange rate realizations equally well. This result is more pronounced at longer horizons. Our results suggest a connection between exchange rates and economic fundamentals: economic variables contain information useful in forecasting the distributions of exchange rates. The benchmark Taylor rule model is also found to perform better than the monetary and PPP models. Second, the inference framework proposed in this paper for forecast-interval evaluation can be applied in a broader context, such as inflation forecasting, not just to the models and interval forecasting methods used in this paper"--P. [2].
Book Synopsis Out-of-Sample Exchange Rate Predictability in Emerging Markets by : Ibrahim Jamali
Download or read book Out-of-Sample Exchange Rate Predictability in Emerging Markets written by Ibrahim Jamali and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide an in-depth analysis of the predictive ability of models with fundamentals and technical indicators for fourteen emerging market currencies. Our findings suggest that the forecasts from the symmetric Taylor rule as well as from a predictive regression exploiting the informational content of the momentum indicator are statistically superior to those of the random walk and other competing models. We combine the forecasts from the two best performing models via simple techniques and assess the economic significance of the out-of-sample forecasts using a trading strategy based on the sign of the predicted currency returns. Our economic significance results demonstrate that the symmetric Taylor rule, momentum and combination forecasts generate the largest net-of-transactions costs and risk-adjusted returns.
Book Synopsis Exchange Rate Predictability in a Changing World by : Joseph P. Byrne
Download or read book Exchange Rate Predictability in a Changing World written by Joseph P. Byrne and published by . This book was released on 2014 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Handbook of Exchange Rates by : Jessica James
Download or read book Handbook of Exchange Rates written by Jessica James and published by John Wiley & Sons. This book was released on 2012-05-29 with total page 674 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for Handbook of Exchange Rates “This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field.” —Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley “It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across. I will be keeping a copy close to my fingertips.” —Jim O’Neill, Chairman, Goldman Sachs Asset Management How should we evaluate the forecasting power of models? What are appropriate loss functions for major market participants? Is the exchange rate the only means of adjustment? Handbook of Exchange Rates answers these questions and many more, equipping readers with the relevant concepts and policies for working in today’s international economic climate. Featuring contributions written by leading specialists from the global financial arena, this handbook provides a collection of original ideas on foreign exchange (FX) rates in four succinct sections: • Overview introduces the history of the FX market and exchange rate regimes, discussing key instruments in the trading environment as well as macro and micro approaches to FX determination. • Exchange Rate Models and Methods focuses on forecasting exchange rates, featuring methodological contributions on the statistical methods for evaluating forecast performance, parity relationships, fair value models, and flow–based models. • FX Markets and Products outlines active currency management, currency hedging, hedge accounting; high frequency and algorithmic trading in FX; and FX strategy-based products. • FX Markets and Policy explores the current policies in place in global markets and presents a framework for analyzing financial crises. Throughout the book, topics are explored in-depth alongside their founding principles. Each chapter uses real-world examples from the financial industry and concludes with a summary that outlines key points and concepts. Handbook of Exchange Rates is an essential reference for fund managers and investors as well as practitioners and researchers working in finance, banking, business, and econometrics. The book also serves as a valuable supplement for courses on economics, business, and international finance at the upper-undergraduate and graduate levels.
Book Synopsis Taylor Rule Exchange Rate Forecasting During the Financial Crisis by : Tanya Molodtsova
Download or read book Taylor Rule Exchange Rate Forecasting During the Financial Crisis written by Tanya Molodtsova and published by . This book was released on 2012 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper evaluates out-of-sample exchange rate predictability of Taylor rule models, where the central bank sets the interest rate in response to inflation and either the output or the unemployment gap, for the euro/dollar exchange rate with real-time data before, during, and after the financial crisis of 2008-2009. While all Taylor rule specifications outperform the random walk with forecasts ending between 2007:Q1 and 2008:Q2, only the specification with both estimated coefficients and the unemployment gap consistently outperforms the random walk from 2007:Q1 through 2012:Q1. Several Taylor rule models that are augmented with credit spreads or financial condition indexes outperform the original Taylor rule models. The performance of the Taylor rule models is superior to the interest rate differentials, monetary, and purchasing power parity models.
Book Synopsis Foreign Exchange Rates by : Arif Orçun Söylemez
Download or read book Foreign Exchange Rates written by Arif Orçun Söylemez and published by Routledge. This book was released on 2021-02-07 with total page 83 pages. Available in PDF, EPUB and Kindle. Book excerpt: Predicting foreign exchange rates has presented a long-standing challenge for economists. However, the recent advances in computational techniques, statistical methods, newer datasets on emerging market currencies, etc., offer some hope. While we are still unable to beat a driftless random walk model, there has been serious progress in the field. This book provides an in-depth assessment of the use of novel statistical approaches and machine learning tools in predicting foreign exchange rate movement. First, it offers a historical account of how exchange rate regimes have evolved over time, which is critical to understanding turning points in a historical time series. It then presents an overview of the previous attempts at modeling exchange rates, and how different methods fared during this process. At the core sections of the book, the author examines the time series characteristics of exchange rates and how contemporary statistics and machine learning can be useful in improving predictive power, compared to previous methods used. Exchange rate determination is an active research area, and this book will appeal to graduate-level students of international economics, international finance, open economy macroeconomics, and management. The book is written in a clear, engaging, and straightforward way, and will greatly improve access to this much-needed knowledge in the field.
Book Synopsis NBER Macroeconomics Annual 2007 by : Daron Acemoglu
Download or read book NBER Macroeconomics Annual 2007 written by Daron Acemoglu and published by . This book was released on 2008-03 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The NBER Macroeconomics Annual provides a forum for important debates in contemporary macroeconomics and major developments in the theory of macroeconomic analysis and policy that include leading economists from a variety of fields. The papers and accompanying discussions in NBER Macroeconomics Annual 2007 address exchange-rate models; implications of credit market frictions; cyclical budgetary policy and economic growth; the impacts of shocks to government spending on consumption, real wages, and employment; dynamic macroeconomic models; and the role of cyclical entry of new firms and products on the nature of business-cycle fluctuations and on the effects of monetary policy.
Book Synopsis Revisiting the Out-of-Sample Exchange Rate Predictability in the Monetary Model by : Hsiu-Hsin Ko
Download or read book Revisiting the Out-of-Sample Exchange Rate Predictability in the Monetary Model written by Hsiu-Hsin Ko and published by . This book was released on 2016 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We utilize Monte Carlo simulations to evaluate, in finite samples, the forecasting performance of the monetary model. The data generating process (DGP) is based on the assumptions of Engel and West (2005) about the present-value model for exchange rates, namely that the discount factor is close to unity and the fundamentals have unit-root processes. We evaluate the out-of-sample performance of the monetary model against the random walk model by using the long-run regression test. While the forecasting power of the long-run regression is not strong, the experimental evidence illustrates that the probability of out-of-sample exchange rate predictability at long horizons is generally larger than that at the short horizons. We conclude that the present-value model under Engel and West's (2005) explanation has a heretofore unrecognized implication of out-of-sample exchange rate predictability at long run horizons.
Book Synopsis Taylor Rules with Real-Time Data by : Tanya Molodtsova
Download or read book Taylor Rules with Real-Time Data written by Tanya Molodtsova and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using real-time data that reflects information available to monetary authorities at the time they are formulating policy, we find that estimated Taylor rules based on revised and real-time data differ more for Germany than for the U.S., Taylor rules using real-time data suggest differences between U.S. and German monetary policies, and Taylor rules for the U.S. using inflation forecasts are nearly identical to those using lagged inflation rates. Evidence of out-of-sample predictability for the dollar/mark nominal exchange rate with forecasts based on Taylor rule fundamentals is only found with real-time data and does not increase if inflation forecasts are used.
Book Synopsis Exchange Rate Predictability by : Barbara Rossi
Download or read book Exchange Rate Predictability written by Barbara Rossi and published by . This book was released on 2013 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: The main goal of this article is to provide an answer to the question: "Does anything forecast exchange rates, and if so, which variables?". It is well known that exchange rate fluctuations are very difficult to predict using economic models, and that a random walk forecasts exchange rates better than any economic model (the Meese and Rogoff puzzle). However, the recent literature has identified a series of fundamentals/methodologies that claim to have resolved the puzzle. This article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up-to-date, thorough empirical analysis. Overall, our analysis of the literature and the data suggests that the answer to the question: "Are exchange rates predictable?" is, "It depends" on the choice of predictor, forecast horizon, sample period, model, and forecast evaluation method. Predictability is most apparent when one or more of the following hold: the predictors are Taylor rule or net foreign assets, the model is linear, and a small number of parameters are estimated. The toughest benchmark is the random walk without drift.
Book Synopsis Taylor Rules with Real-Time Data by : Tanya Molodtsova
Download or read book Taylor Rules with Real-Time Data written by Tanya Molodtsova and published by . This book was released on 2019 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using real-time data that reflects information available to monetary authorities at the time they are formulating policy, we find that estimated Taylor rules based on revised and real-time data differ more for Germany than for the U.S., Taylor rules using real-time data suggest differences between U.S. and German monetary policies, and Taylor rules for the U.S. using inflation forecasts are nearly identical to those using lagged inflation rates. Evidence of out-of-sample predictability for the dollar/mark nominal exchange rate with forecasts based on Taylor rule fundamentals is only found with real-time data and does not increase if inflation forecasts are used.
