Meese-Rogoff redux
Subtitle: micro-based exchange rate forecasting
By: Martin D.D. Evans, Richard K. Lyons.
Contributors: Lyons, Richard K.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11042; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11042.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Foreign exchange rates -- Forecasting -- Econometric models.
Description: "This paper compares the true, ex-ante forecasting performance of a micro-based model against both a standard macro model and a random walk.  In contrast to existing literature, which is focused on longer horizon forecasting, we examine forecasting over horizons from one day to one month (the one-month horizon being where micro and macro analysis begin to overlap).  Over our 3-year forecasting sample, we find that the micro-based model consistently out-performs both the random walk and the macro model.  Micro-based forecasts account for almost 16 per cent of the sample variance in monthly spot rate changes.  These results provide a level of empirical validation as yet unattained by other models.  Our result that the micro-based model out-performs the macro model does not imply that macro fundamentals will never explain exchange rates.  Quite the contrary, our findings are in fact consistent with the view that the principal driver of exchange rates is standard macro fundamentals.  In Evans and Lyons (2004b)we report firm evidence that the non-public information that we exploit here for forecasting exchange rates is also useful for forecasting macro fundamentals themselves"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 2/8/2005.
Also available in print.
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Mode of access: World Wide Web.