Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10477145 | Journal of International Economics | 2005 | 24 Pages |
Abstract
A major puzzle in international finance is the well-documented inability of models based on monetary fundamentals to produce better out-of-sample forecasts of the nominal exchange rate than a naive random walk. While this literature has generally employed statistical measures of forecast accuracy, we investigate whether there is any economic value to the predictive power of monetary fundamentals for the exchange rate. We find that, in the context of a simple asset allocation problem, the economic value of exchange rate forecasts from a fundamentals model can be greater than the economic value of random walk forecasts across a range of horizons.
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Abhay Abhyankar, Lucio Sarno, Giorgio Valente,