Abiding by these principles, an open-economy. DSGE model performs well in real exchange rate forecasting. However, it fails to forecast nominal exchange rates 3 Mar 2017 Macroeconomic models have been criticised for their inability to forecast exchange rates better than the random walk model. This column First, forecasts should not replicate the high volatility of exchange rates observed in sample. Second, models should exploit the mean reversion of the real 18 Jun 2016 We run a real exchange rate forecasting "horse race", which highlights that two principles hold. First, forecasts should not replicate the high 13 Dec 2016 fundamentals-based models, a DSGE model, estimated with Bayesian linearities of the exchange rate forecasting models caused by the participants at the BIS Workshop “Using DSGE models for forecasting and it has been shown that including the expected change of the exchange rate into.
2010b) explored the role of the exchange rate in South African monetary policy, before evaluating the forecasting properties of the model in Alpanda et al. (2011) nominal exchange rates and inflation rates in shaping the response of real exchange rates using an estimated three-country DSGE model of the World economy. of-sample forecasts of the NER based on the RER beat a random- walk assess the model's ability to explain exchange rate movements. ∗Thomas Lubik: use of Bayesian estimation techniques for DSGE models. While the former shows that a richly parameterized SOE model has forecasting prop- erties that
Second, models should exploit the mean reversion of the real exchange rate over long horizons. Third, they should account for the international price co-movement seen in the data. Abiding by the first two principles an open-economy dynamic stochastic general equilibrium (DSGE) model performs well in forecasting the real but not the nominal exchange rate. Only approaches that conform to all three principles tend to outperform the random walk.
25 Nov 2011 In this chapter I review a number of models of exchange rate structural general equilibrium (DSGE) models, have become The analysis of exchange rate forecasts changes dramatically with the development of the. equilibrium (DSGE) model using Brazil´s economy data for the inflation- targeting period. rules and the other one is a nominal exchange rate pegging. of the South Africa economy and use it to forecast output growth, inflation and short. 2010b) explored the role of the exchange rate in South African monetary policy, before evaluating the forecasting properties of the model in Alpanda et al. (2011) nominal exchange rates and inflation rates in shaping the response of real exchange rates using an estimated three-country DSGE model of the World economy. of-sample forecasts of the NER based on the RER beat a random- walk
2010b) explored the role of the exchange rate in South African monetary policy, before evaluating the forecasting properties of the model in Alpanda et al. (2011) nominal exchange rates and inflation rates in shaping the response of real exchange rates using an estimated three-country DSGE model of the World economy. of-sample forecasts of the NER based on the RER beat a random- walk