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Real Exchange-Rate Prediction over Short Horizons

Author

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  • Wu, Jyh-Lin
  • Chen, Show-Lin

Abstract

The objective of this paper is to examine the predictability of real exchange rates during the period following Bretton Wood. The uniqueness of the model is that it allows for time-varying-coefficient and Markov-switching heteroskedasticity. Evidence is provided to show that the model, with appropriate specification, is superior to the random walk in terms of out-of-sample predictability even when forecast horizons are short. Copyright 2001 by Blackwell Publishing Ltd.

Suggested Citation

  • Wu, Jyh-Lin & Chen, Show-Lin, 2001. "Real Exchange-Rate Prediction over Short Horizons," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 401-413, August.
    • Handle: RePEc:bla:reviec:v:9:y:2001:i:3:p:401-13
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    Cited by:

    1. Andreas Andersson & Par Osterholm, 2005. "Forecasting real exchange rate trends using age structure data - the case of Sweden," Applied Economics Letters, Taylor & Francis Journals, vol. 12(5), pages 267-272.
    2. Magnus Gustavsson & Pär Österholm, 2010. "The presence of unemployment hysteresis in the OECD: what can we learn from out-of-sample forecasts?," Empirical Economics, Springer, vol. 38(3), pages 779-792, June.
    3. Hsin-Min Lu & Chia-Shang J. Chu, 2006. "Random walk hypothesis in exchange rate reconsidered," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 25(4), pages 275-290.
    4. Mr. Zhongxia Jin, 2003. "The Dynamics of Real Interest Rates, Real Exchange Rates and the Balance of Payments in China: 1980-2002," IMF Working Papers 2003/067, International Monetary Fund.
    5. Gravelle, Toni & Kichian, Maral & Morley, James, 2006. "Detecting shift-contagion in currency and bond markets," Journal of International Economics, Elsevier, vol. 68(2), pages 409-423, March.

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