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Measuring the Economic Significance of Structural Exchange Rate Models

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  • Cerrato, Mario
  • Crosby, John
  • Kaleem, Muhammad

Abstract

This paper examines both the in-sample and out-of-sample performance of three monetary fundamental models of exchange rates and compares their out-of-sample performance to that of a simple Random Walk model. Using a data-set consisting of five currencies at monthly frequency over the period January 1980 to December 2009 and a battery of newly developed performance measures, the paper shows that monetary models do better (in-sample and out-of-sample forecasting) than a simple Random Walk model.

Suggested Citation

  • Cerrato, Mario & Crosby, John & Kaleem, Muhammad, 2011. "Measuring the Economic Significance of Structural Exchange Rate Models," SIRE Discussion Papers 2011-62, Scottish Institute for Research in Economics (SIRE).
    • Handle: RePEc:edn:sirdps:350
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    File URL: http://hdl.handle.net/10943/350
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    1. Exchange rate modelling: is the random walk beatable?
      by Economic Logician in Economic Logic on 2012-01-29 20:49:00

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    More about this item

    Keywords

    monetary models; forecasting;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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