Cointegration and exchange rate forecasting
Author | : Zhaohui Chen |
Publisher | : |
Total Pages | : 36 |
Release | : 1993 |
Genre | : |
ISBN | : |
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Author | : Zhaohui Chen |
Publisher | : |
Total Pages | : 36 |
Release | : 1993 |
Genre | : |
ISBN | : |
Author | : Javier Gardeazabal |
Publisher | : Springer Science & Business Media |
Total Pages | : 206 |
Release | : 2012-12-06 |
Genre | : Business & Economics |
ISBN | : 3642488587 |
These notes draw from the Theory of Cointegration in order to test the monetary model of exchange rate determination. Previous evidence shows that the monetary model does not capture the short run dynamics of the exchange rate, specially when assessed in terms of forecasting accuracy. Even though the monetary equations of exchange rate determination may be bad indicators of how exchange rates are determined in the short run, they couldstill describe long run equilibrium relationships between the exchange rate and its fundamentals. Stationary deviations from those long run relationships are allowed in the short run. This book also addresses severalissues on Cointegration. Chapter 6 studies the small sample distribution of the likelihood ratio test statistics (on the dimension and restrictions on the cointegrating space) under deviations from normality. This monograph also focuses on the issue of optimal prediction in partially nonstationary multivariate time series models. In particular, it caries out an exchange rate prediction exercise.
Author | : Yin-Wong Cheung |
Publisher | : |
Total Pages | : 66 |
Release | : 1997 |
Genre | : Foreign exchange rates |
ISBN | : |
Exchange rate forecasts are generated using some popular monetary models of exchange rates in conjunction with several estimation techniques. We propose an alternative set of criteria for evaluating forecast rationality which entails the following requirements: the forecast and the actual series i) have the same order of integration, ii) are cointegrated, and iii) have a cointegrating vector consistent with long run unitary elasticity of expectations. When these conditions hold, we consider the forecasts to be consistent.' We find that it is fairly easy for the generated forecasts to pass the first requirement. However, according to the Johansen procedure, cointegration fails to hold the farther out the forecasts extend. At the one year ahead horizon, most series and their respective forecasts do not appear cointegrated. Of the cointegrated pairs, the restriction of unitary elasticity of forecasts with respect to actual appears not to be rejected in general. The exception to this pattern is in the case of the error correction models in the longer subsample. Using the Horvath-Watson procedure, which imposes a unitary coefficient restriction, we find fewer instances of consistency, but a relatively higher proportion of the identified cases of consistency are found at the longer horizons.
Author | : Alan Gregory |
Publisher | : |
Total Pages | : 0 |
Release | : 1993 |
Genre | : Foreign exchange rates |
ISBN | : |
Author | : Katarina Juselius |
Publisher | : MDPI |
Total Pages | : 219 |
Release | : 2018-07-05 |
Genre | : Business & Economics |
ISBN | : 3038429554 |
This book is a printed edition of the Special Issue "Recent Developments in Cointegration" that was published in Econometrics
Author | : Mr.Ronald MacDonald |
Publisher | : International Monetary Fund |
Total Pages | : 34 |
Release | : 1992-05 |
Genre | : Business & Economics |
ISBN | : |
We re-examine the monetary approach to the exchange rate from a number of perspectives, using monthly data on the deutschemark-dollar exchange rate. Using the Campbell-Shiller technique for testing present value models, we reject the restrictions imposed upon the data by the forward-looking rational expectations monetary model. We demonstrate, however, that the monetary model is validated as a long-run equilibrium condition. Moreover, imposing the long-run monetary model restrictions in a dynamic error correction framework leads to exchange rate forecasts which are superior to those generated by a random walk forecasting model.
Author | : Robert A. Connolly |
Publisher | : |
Total Pages | : 44 |
Release | : 2012 |
Genre | : |
ISBN | : |
If foreign exchange market participants form rational forecasts of future exchange rates, we should expect that these forecasts should be closely matched to subsequent realizations. Specifically, rational forecasts of a time series and the observed series itself should be cointegrated. In this paper, we apply this insight to multiple exchange rate series and a corresponding set of market expectations of future values of the exchange rate series. We build a cointegration (and associated error-correction) model of actual and expected exchange rates for five exchange rates against the U.S. Dollar, using weekly expectations data from Money Market Services, International for the 1986 - 1997 period. Our empirical work produces very strong evidence of cointegration between the exchange rate series and the expected rates series. We find strong evidence that existing work that ignores the impact of error-correction is significantly misspecified. At the shortest forecast horizon, the error-correction term dominates all other determinants of changes in expected exchange rates in our sample and indicates a sensible response by market participants to past mistakes in forecasting future rates. At longer forecast horizons, error-correction remains very important, but lagged changes in actual and expected rates also play a role. We find limited evidence of threshold effects in our error-correction models.
Author | : J. Gardeazabal |
Publisher | : |
Total Pages | : 212 |
Release | : 1992 |
Genre | : |
ISBN | : 9783642488597 |
These notes draw from the Theory of Cointegration in order to test the monetary model of exchange rate determination. Previous evidence shows that the monetary model does not capture the short run dynamics of the exchange rate, specially when assessed in terms of forecasting accuracy. Even though the monetary equations of exchange rate determination may be bad indicators of how exchange rates are determined in the short run, they couldstill describe long run equilibrium relationships between the exchange rate and its fundamentals. Stationary deviations from those long run relationships are allowed in the short run. This book also addresses severalissues on Cointegration. Chapter 6 studies the small sample distribution of the likelihood ratio test statistics (on the dimension and restrictions on the cointegrating space) under deviations from normality. This monograph also focuses on the issue of optimal prediction in partially nonstationary multivariate time series models. In particular, it caries out an exchange rate prediction exercise.
Author | : Sven-Morten Mentzel |
Publisher | : Springer Science & Business Media |
Total Pages | : 114 |
Release | : 2012-12-06 |
Genre | : Business & Economics |
ISBN | : 3642590179 |
One aim of this book is to examine the causes of fluctuations in the mark/dollar, pound/dollar, and yen/dollar real exchange rates for the period 1972-1994 with quarterly data to determine appropriate policy recommendations to reduce these movements. A second aim is to investigate whether the three real exchange rates are covariance-stationary or not and to which extent they are covariance-stationary, respectively. These aims are reached by using a two-country overshooting model for real exchange rates with real government expenditure and by applying Johansen's maximum likelihood cointegration procedure and a factor model of Gonzalo and Granger to this model.
Author | : Eric J. Pentecost |
Publisher | : Edward Elgar Publishing |
Total Pages | : 248 |
Release | : 1993 |
Genre | : Business & Economics |
ISBN | : |
This work examines the development of the determinants of the exchange rate system since the mid-1970s. It scrutinises the main theoretical models of exchange rate determination and assesses their empirical validity drawn from recent econometric results (based on cointegration methodology).