Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963757 | Journal of International Money and Finance | 2016 | 22 Pages |
Abstract
We introduce a forecasting method that closely matches the econometric properties required by exchange rate theory. Our approach formally models (i) when (and if) predictor variables enter or leave a regression model, (ii) the degree of parameter instability, (iii) the (potentially) rapidly changing relevance of regressors, and (iv) the appropriate shrinkage intensity over time. We consider (short-term) forecasting of six major US dollar exchange rates using a standard set of macro fundamentals. Our results indicate the importance of shrinkage and flexible model selection/averaging criteria to avoid poor forecasting results.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Joscha Beckmann, Rainer Schüssler,