Front Matter Page
IMF Institute
Authorized for distribution by Mohsin S. Khan
Contents
I. Introduction
II. Real Exchange Rate Behavior and Long-Run Purchasing Power Parity
A. A Brief Overview of the Literature
B. Nonlinear Mean Reversion in Real Exchange Rates: Rationale and Modeling Procedures
C. Empirical Evidence on Nonlinear Mean Reversion in Real Exchange Rates
III. Out-of-Sample Forecasts of the Nominal Exchange Rate
A. The Failure of Conventional Exchange Rate Models
B. The Information in the Term Structure of the Forward Premia
C. Allowing for Nonlinear Dynamics in a Spot-Forward VECM
D. Empirical Evidence on the Importance of Nonlinear Dynamics in Out-of-Sample Exchange Rate Forecasting
IV. Further Issues in Evaluating Nonlinear Forecasting Exchange Rate Models
A. Density Forecast Evaluation
B. An Illustrative Application to Exchange Rate Forecasting
C. Implications for Risk Management and VaR Analysis
V. Concluding Remarks
Tables
1. Exchange Rate Forecasting Results
2. VaR Estimation and Backtesting
Figures
1. Kernel Density Estimation: Japan
2. Kernel Density Estimation: United Kingdom
References