Exchange rates and monetary fundamentals: what do we learn from long-horizon regressions?

The use of a new bootstrap method for small-sample inference in long-horizon regressions is illustrated by analysing the long-horizon predictability of four major exchange rates, and the findings are reconciled with those of an earlier study by Mark (1995). While there is some evidence of exchange r...

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Bibliographic Details
Published in:Journal of applied econometrics (Chichester, England) England), 1999-09, Vol.14 (5), p.491-510
Main Author: Kilian, Lutz
Format: Article
Language:English
Subjects:
Bias
Bootstrap resampling
Econometrics
Economic models
Efficient markets
Empirical evidence
Equilibrium
Error correction & detection
Exchange rates
Forecasting models
Forecasts
Foreign exchange rates
Inference
Interest rates
International monetary economics
Linear models
Monetary theory
Monte Carlo simulation
Null hypothesis
P values
Predictability
Random walk
Real income
Regression analysis
Statistical forecasts
Stock returns
Studies
Citations: Items that this one cites
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Summary:The use of a new bootstrap method for small-sample inference in long-horizon regressions is illustrated by analysing the long-horizon predictability of four major exchange rates, and the findings are reconciled with those of an earlier study by Mark (1995). While there is some evidence of exchange rate predictability, contrary to earlier studies, no evidence is found of higher predictability at longer horizons. Additional evidence is presented that the linear VEC model framework underlying the empirical study is likely to be misspecified, and that the methodology for constructing bootstrap p-values for long-horizon regression tests may be fundamentally flawed.
ISSN:0883-7252
1099-1255
DOI:10.1002/(SICI)1099-1255(199909/10)14:5<491::AID-JAE527>3.0.CO;2-D