Efficient exchange rate forecasts: Lagged models better than the random walk

The evidence of Meese amd Rogoff (1983) on the out-of-sample forecasting performance of structural exchange rate models in comparison to the random walk model portrays a disappointing picture of structural models. This paper re-considers the issue for the German mark for an updated period to include...

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Bibliographic Details
Published in:Journal of international money and finance 1986-06, Vol.5 (2), p.195-220
Main Author: Somanath, V.S.
Format: Article
Language:English
Subjects:
Efficient markets
Forecasting
Foreign exchange rates
Mathematical models
Monetary theory
Random walk theory
Statistical analysis
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Summary:The evidence of Meese amd Rogoff (1983) on the out-of-sample forecasting performance of structural exchange rate models in comparison to the random walk model portrays a disappointing picture of structural models. This paper re-considers the issue for the German mark for an updated period to include a larger set of structural models and lagged adjustment. Besides out-of-sample evidence, in-sample evidence is also examined. We conclude that while some stuctural models dominate the random walk, a lagged adjustment consideration can contribute towards better performance.
ISSN:0261-5606
1873-0639
DOI:10.1016/0261-5606(86)90042-2