search query: @indexterm Random walks / total: 34
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| Author: | Kilian, L. Taylor, M. P. |
| Title: | Why is It So Difficult to Beat the Random Walk Forecast of Exchange Rates? |
| Journal: | Journal of International Economics
2003 : MAY, VOL. 60:1, p. 85-108 |
| Index terms: | EXCHANGE RATES FORECASTING PURCHASING POWER PARITY RANDOM WALKS |
| Language: | eng |
| Abstract: | Recent empirical evidence suggests that the time series behavior of the real exchange rate is well approximated by a nonlinear, exponential smooth transition autoregressive (ESTAR) model. This nonlinearity helps resolve a number of puzzles concerning the persistence and volatility of real exchange rates. In this paper, the authors explore whether it may also help resolve the well- known difficulties of exchange rate forecasting. The authors develop a bootstrap test of the random walk hypothesis of the nominal exchange rate, given ESTAR real exchange rate dynamics. The authors find strong evidence of predictability at horizons of 2 to 3 years, but not at shorter horizons. |
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