American Economic Review Vol. 85 No. 1 1995
Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability
Abstract
Regressions of multiple-period changes in the log exchange rate on the deviation of the log exchange rate from its "fundamental value," display evidence that long-horizon changes in log nominal exchange rates contain an economically significant predictable component. To account for small-sample bias and size distortion in asymptotic tests, inference is drawn from bootstrap distributions generated under the null hypothesis that the log exchange rate is unpredictable. The bias-adjusted slope coefficients and R^2's increase with the forecast horizon, and the out-of-sample point predictions generally outperform the driftless random walk at the longer horizons.
- Volume
- 85
- Issue
- 1
- Pages
- 201-218
- Sources
- bibtex:phds-export.bib