forecasting the exchange rate a monetary or random walk phenomenon abstract this paper evaluates the forecasting accuracy of monetary and random walk models of the exchange rate instrumental variable estimates of the simple monetary model are not supported by the data while the full information maximum liklihood estimates of its rational expectations counterpart are the rational expectations monetary model is operationalized using the results of hansen and sargent 1980 and flavin 1981 and box jenkins time series techniques monthly data on the us and uk economics over the recent flexible exchange rate period serve as the case study

the monetary approach to exchange rate determination under rational expectations the dollar deutschmark rate abstract this paper reformulates the monetary approach after ascertaining that a money demand function with a partial adjustment mechanism had more empirical support than a money demand function which assumed instantaneous stock adjustment the resulting exchange rate equation is estimated by two rational expectations techniques the parameter estimates are reasonable and are robust to the estimation technique used to different specifications of the driving processes and to changes in the estimation period the structural model outperforms the random walk model and its own unconstrained equivalent a pure time series equation in outof sample forecasts

seasonal flutuations and equilibrium models of exchange rate most of the evidence on dynamic equilibrium exchange rate models is based on seasonally adjusted consumption data equilibrium models have not worked well in explaining the actual exchange rate however the use of seasonally adjusted data might be responsible for the spurious rejection of the model this article presents a new equilibrium model for the exchange rates that incorporates seasonal preferences the fit of the model to the data is evaluated for five industrialized countries using seasonally unadjusted data our findings indicate that a model with seasonal preferences can generate monthly time series of the exchange rate without seasonality even when the variables that theoretically determine the exchange rate show clear seasonal behaviours further the model can generate theoretical exchange rates with the same order of integration than actual exchange rates and in some cases with the same stochastic trend

testing the monetary model of exchange rate determination new evidence from a century of data abstract we test the long run monetary model of exchange rate determination for a collection of 14 industrialized countries using data spanning the late nineteenth or early twentieth century to the late twentieth century interestingly we find support for a simple form of the long run monetary model in over half of the countries we consider for these countries we estimate vector error correction models to investigate the adjustment process to the long run monetary equilibrium in the spirit of meese and rogoff journal of international economics 14 1983 3 24 we also compare nominal exchange rate forecasts based on monetary fundamentals to those based on a naive random walk model

on the predictive power of monetary exchange rate model the case of the malaysian ringgit us dollar rate the predictive power of the monetary model for the malaysian ringgit us dollar rm usd rate is analysed using quarterly data ending in 2006 q3 we find compelling evidence of a long run relationship between exchange rates and the economic fundamental determinant macroeconomic factors systematically affect the long run movement of the rm usd rate additionally the rm usd rate was overvalued by about 10 several quarters before the 1997 crisis after the crisis rates fluctuated close to the equilibrium value the out of sample forecasts demonstrate that the monetary model outperforms the naive random walk model the monetary and purchasing power parity ppp models do well at the four to eight quarters horizon

efficient exchange rate forecasts lagged models better than the random walk abstract 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

measuring the dollar euro permanent equilibrium exchange rate using the unobserved components model this paper employs an unobserved component model that incorporates a set of economic fundamentals to obtain the euro dollar permanent equilibrium exchange rates peer for the period 1975q1 to 2008q4 the results show that for most of the sample period the euro dollar exchange rate closely followed the values implied by the peer the only significant deviations from the peer occurred in the years immediately before and after the introduction of the single european currency the forecasting exercise shows that incorporating economic fundamentals provides a better long run exchange rate forecasting performance than a random walk process

testing for bubbles in exchange markets a case of sparkling rates this paper investigates the possibility that the observed deviations of major bilateral exchange rates from values implied by market fundamentals are a consequence of rational asset market bubbles when a new econometric methodology for detecting asset market bubbles is used the joint hypothesis of no bubbles and stable autoregressive processes for relative money supplies and real incomes is rejected for the dollar deutsche mark and dollar pound ratesusing monthly data over the period 1973 82 additional tests for coefficient stability and for lack of cointegration between exchange rates and market fundamentals suggest that the bubble findings must be interpreted with care

foreign exchange market interventions and the exchange rate in the long run this article examines whether foreign exchange market interventions conducted by the bank of japan are important for the dollar yen exchange rate in the long run we rely on a re examination of the empirical performance of a monetary exchange rate model this is basically not a new topic however we focus on two new questions first does the consideration of periods of massive interventions in the foreign exchange market uncover a potential long run relationship between the exchange rate and its fundamentals second do forex interventions support the adjustment towards a long run equilibrium value our results suggest that taking periods of interventions into account within a monetary model does improve the goodness of fit of an identified long run relationship to a significant degree furthermore forex interventions increase the speed of adjustment towards long run equilibrium in some periods particularly in periods of coordinated forex interventions our results indicate that only coordinated inter

exchange rate predictability the main goal of this article is to provide an answer to the question does anything forecast exchange rates and if so which variables it is well known that exchange rate fluctuations are very difficult to predict using economic models and that a random walk forecasts exchange rates better than any economic model the meese and rogoff puzzle however the recent literature has identified a series of fundamentals methodologies that claim to have resolved the puzzle this article provides a critical review of the recent literature on exchange rate forecasting and illustrates the new methodologies and fundamentals that have been recently proposed in an up to date thorough empirical analysis overall our analysis of the literature and the data suggests that the answer to the question are exchange rates predictable is it depends on the choice of predictor forecast horizon sample period model and forecast evaluation method predictability is most apparent when one or more of the following hold the predictors are taylor rule or net foreign assets the model is linear and a small number of parameters are estimated the toughest benchmark is the random walk without drift

basel iii and perceived resilience of banks in the brics economies abstractthis study investigates how the additional capital and liquidity requirements of basel iii would increase the resilience of banks in particular using panel data from 2007 to 2014 we examine the resilience of banks in the brics economies our results suggest that a 10 increase in capital adequacy ratio car tier 1 capital ratio tra and leverage ratio lev the resilience as measured by z score of banks increases by about 2 18 0 89 and 1 31 respectively similarly for a 100 increase in liquidity coverage ratio lcr the resilience of banks increases by 0 51 1 10 and 1 19 respectively in the models associated with car tra and lev hence our findings suggest that the car is robust to increase the resilience of banks our study also reveals that the lcr and lev are the most effective to increase the resilience of banks if implemented simultaneously we also find that the stage of economic development does not matter in formulating policies for the brics economies and finally

a stable us money demand function 1874 1975 we apply recent econometric techniques to the demand for money in the united states over a period of some hundred years using data previously analyzed by friedman and schwartz 1982 our results parallel those of hendry and ericsson s 1991 uk study we find evidence of a unique long run money demand function and of a stable short run demand function which passes a range of diagnostic tests and exhibits parameter constancy also parameter non constancy in an inverted equation where prices appear as the dependent variable is inconsistent with the hypothesis of exogenous money determining prices through the money demand function

long run purchasing power parity is it for real in this paper we re examine the purchasing power parity concept using data from the recent experience with floating exchange rates in particular we utilise the recently developed multivariate cointegration methodology to test for a long run relationship between exchange rates and relative prices and also to test for the proportionality of the exchange rate with respect to relative prices in contrast to much other research we demonstrate that there is a long run relationship between a number of bilateral u s dollar exchange rates and their corresponding relative prices the proportionality of the exchange rate to relative prices does not however receive support from the data this finding may be attributable to the use of measured price series rather than the true series

error correction modelling and dynamic specifications as a conduit to outperforming the random walk in exchange rate forecasting the proposition that dynamic exchange rate models can outperform the random walk in out of sample forecasting in the sense that they produce lower mean square errors is examined and disputed by using several dynamic versions of three macroeconomic exchange rate models it is demonstrated that dynamic specifications outperform the corresponding static models but improvement in the forecasting power may not be sufficient for the dynamic models to perform better than the random walk the results are explained by suggesting that any dynamic specification or transformation of the static model leads to the introduction of a lagged dependent variable which in effect is a random walk component the analysis leads to the conclusion that it is implausible to aim at beating the random walk by augmenting a static model with a random walk component

cointegration tests of purchasing power parity the case of swiss exchange rates abstract this paper tests purchasing power parity ppp as a long run equilibrium condition by examining the long run relationshiop between exchange rates and wholesale price indices using cointegration tests this paper avoids some of the problems of previous cointegration tests of ppp by using more precise data pretests and by not imposing a priori restrictions upon the cointegrating vector of the nine combinations of swiss exchange rates and price indices examined cointegration is detected in seven cases thus supporting ppp as a long run equilibrium jel f31 c32

does the euro follow the german mark evidence from the monetary model of the exchange rate abstract this paper investigates whether german or synthetic european pre emu data provides the appropriate empirical basis for evaluating euro dollar exchange rate behavior monetary exchange rate equations are estimated for both data sets over the pre emu period and out of sample forecasts are evaluated to assess their ability to explain the euro dollar exchange rate from 1999 to 2004 while forecast accuracy tests confirm the usefulness of synthetic european data for euro exchange rate analysis forecasts based on the german pre emu experience cannot even beat a random walk our results indicate that the euro does not simply follow the german mark but that it has its origins in the other pre emu currencies as well

co integration tests for long run equilibrium in the monetary exchange rate model abstract the monetary model of exchange rate determination is tested as a long run equilibrium relation tests of co integration among the variables in this model over a wide range of specifications are generally unfavorable to the monetary approach

tests of the different variants of the monetary model in a developing economy malaysian experience in the pre and post crisis periods this study examines the validity of four different variants of the monetary model of exchange rate determination for malaysia covering both the pre and post crisis periods using the vector error correction models the findings demonstrate that for both periods the variables used are cointegrated tests tend to suggest that of the four variants of monetary model the sticky price model holds in both periods and the flexible price model holds only in the post crisis period the proportionality between the exchange rate and relative money does not hold in any period the plotted actual and fitted exchange rates for both sub samples show that the models are able to track the actual exchange rate trend quiet well

exchange rates and fundamentals co movement long run relationships and short run dynamics abstract the present study builds upon the seminal work of engel and west 2005 and in particular on the relationship between exchange rates and fundamentals the paper discusses the well known puzzle that fundamental variables such as money supply and interest rate provide help in predicting changes in floating rates it also tests the theoretical result of engel and west 2005 that in a rational expectations present value model the asset price manifests near random walk behaviour if the fundamentals are i 1 and the factor for discounting future fundamentals is near one the study explores the direction and nature of causal interdependencies among the most widely traded currencies in the world their country specific fundamentals and their us differentials a new var vecm garch multivariate filtering approach is implemented whilst linear and nonlinear non causality is tested and validated on simulated and empirical data the evidence implies that there is no indication of a prevailing causal behaviour and when nonlinear effects are accounted for the pattern of leads and lags changes over time the variations in this linkage can be attributed to parameter instability in structural models which may have little effect on fx forecastability over short horizons yet it is significant for long run cointegrating relationships while it is difficult to reconcile these findings with the rational expectations hypothesis the theory of consistent expectations or bounded rationality matches simulation and empirical findings more efficiently overall fundamentals may be important determinants of fx rates however there may be some other unobservable variables driving the currency rates that current asset pricing models have not yet captured

persistence in foreign exchange rates abstract this study examines the long run behavior of seven daily nominal exchange rates using univariate and multivariate persistence measures our results indicate that for some currencies the long run behavior deviates from that of a pure random walk in certain periods the multivariate estimates reflect the effect of both the ems exchange rate mechanism and increased post louvre accord coordinated intervention a large portion of the effect of a shock in one currency on another currency s long run value can be attributed to contemporaneous effects on the other currencies

multi attribute utility function or statistical inference models a comparison of health state valuation models using the hui2 health state classification system a key issue in health state valuation modelling is the choice of functional form the two most frequently used preference based instruments adopt different approaches one based on multi attribute utility theory maut the other on statistical analysis there has been no comparison of these alternative approaches in the context of health economics we report a comparison of these approaches for the health utilities index mark 2 the statistical inference model predicts more accurately than the one based on maut we discuss possible explanations for the differences in performance the importance of the findings and implications for future research

the demand for money in the united states evidence from cointegration tests this paper uses recent cointegration test procedures to investigate the underlying economic relationship between real money balances real income and interest rates for the united states unlike recent studies of money demand the authors analysis uses quarterly data spanning the period 1915 88 thus providing a sample encompassing a wide variety of economic experiences the evidence presented indicates that the broader m2 measure of money is the preferable measure with which to consider the long run effects of monetary policy copyright 1991 by ohio state university press

the monetary model of the exchange rate long run relationships short run dynamics and how to beat a random walk abstract the monetary model is re examined for the sterling dollar exchange rate first it is demonstrated using a multivariate cointegration technique that an unrestricted monetary model is a valid framework for analyzing the long run exchange rate second we find once proper account has been taken of the short run data dynamics that an unrestricted monetary model outperforms the random walk and other models in an out of sample forecasting contest jel f31