Sarmidi, Tamat (2008): Exchange Rates Predictability in Developing Countries.
Download (312Kb) | Preview
The main objective of this study is to re-investigates the exchange rates predictability puzzle using monetary model. It is hypothesised that the performance of exchange rate predictability is better off in countries with monetary instability. We employ bootstrap technique as proposed by Kilian (1999) to alleviate statistical inference intricacies inherit in the long horizon forecasting for three different monetary models (flexible price, sticky price and relative price) for selected developing economies. The empirical result shows the superiority of sticky price model along with the evidence of exchange rate predictability for high inflation economies.
|Item Type:||MPRA Paper|
|Original Title:||Exchange Rates Predictability in Developing Countries|
|Keywords:||Foreign exchange; international finance; forecasting;|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods; Simulation Methods
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||TAMAT SARMIDI|
|Date Deposited:||04. Aug 2009 09:58|
|Last Modified:||19. Feb 2013 07:43|
Andrews, Donald W. K. (1991), 'Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation', Econometrica, 59 (3), 817-58.
Baharumshah, Ahmad Zubaidi and Masih, A. Mansur M. (2005), 'Current account, exchange rate dynamics and the predictability: the experience of Malaysia and Singapore', Journal of International Financial Markets, Institutions and money 15 (3), 255-70.
Balassa, Bela (1964), 'The purchasing power parity doctrine: A repraisal', Journal of Political Economy, 72 (6), 584-96.
Berkowitz, Jeremy and Giorgianni, Lorenzo (2001), 'Long-Horizon Exchange Rate Predictability?' The Review of Economics and Statistics, 83 (1), 81-91.
Candelon, B., Kool, C., Raabe, K., and Veen, T., (2007), 'Long-run real exchange rate determinants: Evidence from eight new EU member states, 1993–2003', Journal of Comparative Economics 35 (1), 87-107.
Cavanagh, Christopher L., Elliott, Graham, and Stock, James H. (1995), 'Inference in Models with Nearly Integrated Regressors', Econometric Theory, 11 (5), 1131-47.
Chinn, Menzie D. (1998), 'Before the Fall: Were East Asian Currencies Overvalued?' NBER Working Paper, No 6491.
Chinn, Menzie D. and Meese, Richard A. (1995), 'Banking on currency forecasts: How predictable is change in money?' Journal of International Economics, 38 (1-2), 161-78.
Crespo-Cuaresma, Jesus, Fidrmuc, Jarko, and MacDonald, Ronald (2005), 'The monetary approach to exchange rates in the CEECs', The Economics of Transition, 13 (2), 395-416.
Dornbusch, Rudiger (1976), 'Expectations and Exchange Rate Dynamics', The Journal of Political Economy, 84 (6), 1161-76.
Faust, Jon, Rogers, John H., and Wright, Jonathan H. (2003), 'Exchange rate forecasting: the errors we’ve really made ', Journal of International Economics, 60 (1), 35-59.
Faust, Jon, Rogers, John H., and Wright, Jonathan H. (2005), 'News and Noise in G-7 GDP Announcements', Journal of Money, Credit, and Banking, 37 (3), 403-17.
Ferreira, Jose Eduardo de A. (2006), 'Effects of Fundamentals on the Exchange Rate: A Panel Analysis for a Sample of Industrialised and Emerging Economies', University of Kent, Department of Economics Discussion Paper 06/03.
Francis, Bill, Hasan, Iftekar, and Hunter, Delroy (2002), 'Emerging market liberalization and the impact on uncovered interest rate parity', Journal of International Money and Finance, Volume 21 (6), 931-56.
Frankel, J. (1976), 'A monetary approach to the exchange rate: doctrinal aspects and empirical evidence', The Scandinavian Journal of Economics, 78 (2), 200-24.
Frankel, Jeffery A and Poonawala, Jumana (2004), 'The Forward Market in Emerging Currencies: Less Biased than in Major Currencies', Mimeo, Kennedy School of Government, Cambridge, MA.
Goldstein, Morris, Kaminsky, Graciela, and Reinhart, Carmen (2000), Assessing Financial Vulnerability: An Early Warning System for Emerging Markets (Washington, D.C.: Institute for International Economics).
Kilian, Lutz (1999), 'Exchange rates and monetary fundamentals: what do we learn from long-horizon regressions? ' Journal of Applied Econometrics, 14 (5), 491-510.
Kilian, Lutz and Taylor, Mark P. (2003), 'Why is it so difficult to beat the random walk forecast of exchange rates?' Journal of International Economics, 60 (1), 85-107.
Levy-Yeyati, Eduardo and Sturzenegger, Federico (2003), 'To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth', The American Economic Review, 93 (4), 1173-93.
Levy-Yeyati, Eduardo and Sturzenegger, Federico (2005), 'Classifying exchange rate regimes: Deeds vs. words ', European Economic Review, 49 (6), 1603-35.
MacDonald, R. and Ricci, L. A. (2001), 'PPP and the Balassa Samuelson Effect - The Role of the Distribution Sector', IMF Working Paper 01/38
Manzan, Sebastiano and Westerhoff, Frank (2007), 'Heterogeneous Expectations, Exchange Rate Dynamics and Predictability', Journal of Economic Behavior and Organization xx (xx).
Mark, Nelson C. (1995), 'Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability', The American Economic Review, 85 (1), 201-18.
Mark, Nelson C. and Sul, Donggyu (2001), 'Nominal exchange rates and monetary fundamentals: Evidence from a small post-Bretton woods panel ', Journal of International Economics, 53 (1), 29-52.
McNown, Robert and Wallace, Myles S. (1994), 'Cointegration Tests of the Monetary Exchange Rate Model for Three High-Inflation Economies', Journal of Money, Credit and Banking, 26 (3), 396-411.
Meese, Richard A. and Rogoff, Kenneth (1983a), 'Empirical exchange rate models of the seventies: Do they fit out of sample?' Journal of International Economics, 14 (1-2), 3-24.
Meese, R. and Rogoff, K (1983b), The out-of-sample failure of empirical exchange rate models: Sampling error or misspecification?, ed. J. Frankel (Exchange rates and international macroeconomics; Chicago: University of Chicago Press).
Moosa, Imad A. (2000), 'A structural time series test of the monetary model of exchange rates under the German hyperinflation ', Journal of International Financial Markets, Institutions and Money, 10 (2), 213-23.
Neely, Christopher J. and Sarno, Lucio (2002), 'How Well Do Monetary Fundamentals Forecast Exchange Rates?' The Federal Reserve Bank of St. Louis 02/09/51, 21-74.
Rogoff, Kenneth (1996), 'The Purchasing Power Parity Puzzle', Journal of Economic Literature, 34 (2), 647-68.
Rogoff, Kenneth (1999a), 'Monetary Models of Dollar/Yen/Euro Nominal Exchange Rates: Dead or Undead?' The Economic Journal, 109 (459), 655-59.
Rogoff, Kenneth (1999b), 'International Institutions for Reducing Global Financial Instability', The Journal of Economic Perspectives, 13 (4), 21-42.
Samuelson, Paul A. (1964), 'Theoretical Notes on Trade Problems', The Review of Economics and Statistics, 46 (2), 145-54.
Valkanov, Rossen (2003), 'Long-horizon regressions: theoretical results and applications', Journal of Financial Economics, 68 (2), 201-32.
Wang, Jian-Xin and Wong, Hoi-In (1997), 'The predictability of Asian exchange rates: evidence from Kalman filter and ARCH estimations', Journal of Multinational Financial Management, 7 (3), 231-52.