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Short-term exchange rate predictability

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  • Ren, Yu
  • Wang, Qin
  • Zhang, Xiangyu

Abstract

In this paper, we revisit the monetary model in growth rates in explaining exchange rates. Different with the literature, we consider the cross-sectional dependence when using the panel data to predict exchange rates. By using quarterly and monthly data in 30 countries, we find that the monetary model in growth rates can outperform random walk with and without drift in the prediction.

Suggested Citation

  • Ren, Yu & Wang, Qin & Zhang, Xiangyu, 2019. "Short-term exchange rate predictability," Finance Research Letters, Elsevier, vol. 28(C), pages 148-152.
    • Handle: RePEc:eee:finlet:v:28:y:2019:i:c:p:148-152
    DOI: 10.1016/j.frl.2018.04.009
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    1. Ron Alquist & Menzie D. Chinn, 2008. "Conventional and unconventional approaches to exchange rate modelling and assessment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 2-13.
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    Cited by:

    1. Yi-Chen Chung & Hsien-Ming Chou & Chih-Neng Hung & Chihli Hung, 2021. "Using Textual and Economic Features to Predict the RMB Exchange Rate," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 11(6), pages 1-8.
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    3. Kharrat, Sabrine & Hammami, Yacine & Fatnassi, Ibrahim, 2020. "On the cross-sectional relation between exchange rates and future fundamentals," Economic Modelling, Elsevier, vol. 89(C), pages 484-501.
    4. Salisu, Afees A. & Olaniran, Abeeb & Tchankam, Jean Paul, 2022. "Oil tail risk and the tail risk of the US Dollar exchange rates," Energy Economics, Elsevier, vol. 109(C).
    5. Kladívko, Kamil & Österholm, Pär, 2021. "Do market participants’ forecasts of financial variables outperform the random-walk benchmark?," Finance Research Letters, Elsevier, vol. 40(C).
    6. Donghyun Park & Irfan Qureshi & Shu Tian & Mai Lin Villaruel, 2022. "Impact of US monetary policy uncertainty on Asian exchange rates," Economic Change and Restructuring, Springer, vol. 55(1), pages 73-82, February.
    7. Kiss, Tamás & Kladívko, Kamil & Silfverberg, Oliwer & Österholm, Pär, 2023. "Market participants or the random walk – who forecasts better? Evidence from micro-level survey data," Finance Research Letters, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Monetary model; Exchange rate; Out-of-sample prediction; Panel data;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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