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Long: Horizon Exchange Rate Predictability?
Author:
Mr. Lorenzo Giorgianni
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Mr. Jeremy Berkowitz null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 006
Language:
English
Publication Date:
01 Jan 1997
DOI:
https://doi.org/10.5089/9781451842265.001
ISBN:
9781451842265
ISSN:
1018-5941
Pages:
21
Keywords:
WP; exchange rate; error-correction term; slope coefficient; Diebold-Mariano statistic; horizon exchange rate predictability; LS t-statistics; spot rate; Exchange rates; Vector error correction models
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Several authors have recently investigated the predictability of exchange rates by fitting a sequence of long-horizon error-correction regressions. By considering the implied vector error-correction model, we show that little is to be gained from estimating such regressions for horizons greater than one time period. We also show that in small to medium samples the long-horizon procedure gives rise to spurious evidence of predictive power. A simulation study demonstrates that even when using this technique on two independent series, estimates, diagnostic statistics and graphical evidence incorrectly suggest a high degree of predictability of the dependent variable.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund