The effects of interest, inflation, current account and share prices differentials on the out-of-sample exchange rate predictability.
Previous literature suggested that beating the random walk forecast of the exchange rate is a difficult task to do. The purpose of this study is to test to which extend the bond yield rate, the inflation rate, the current account rate and the share prices differentials affect the out-ofsample predictability of the exchange rate. The effects of these macro-economic variables on seven different exchange rates will be estimated by ARDL-models. In-sample estimations and short-run and long-run out-of-sample forecasts will be computed via these Models. The out-ofsample forecasts will be offset against the random walk. The results of these forecasts suggest that six out of 14 forecasts of the ARDL-models can beat the random walk, according to the Diebold-Mariano test. Therefore, there can be concluded that the used macro-economic differentials are able to improve the out-of-sample predictability of the exchange rate.
|Keywords||Out-of-sample predictability, Exchange rate, ARDL-model, Macro-economics|
|Thesis Advisor||Markiewicz, A.P.|
Verweij, K.B. (2020, May 11). The effects of interest, inflation, current account and share prices differentials on the out-of-sample exchange rate predictability.. Business Economics. Retrieved from http://hdl.handle.net/2105/52055