Demystifying the Meese-Rogoff Puzzle
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For the past 30 years international monetary economists have believed that exchange rate models cannot outperform the random walk in out-of-sample forecasting as a result of the 1983 paper written by Richard Meese and Kenneth Rogoff. Marking the culmination of their extensive research into the Meese-Rogoff puzzle, Moosa and Burns challenge the orthodoxy by demonstrating that the naïve random walk model can be outperformed by exchange rate models when forecasting accuracy is measured by metrics that do not rely exclusively on the magnitude of forecasting error. The authors present compelling evidence, supported by their own measure: the 'adjusted root mean square error', to finally solve the Meese-Rogoff puzzle and provide a new alternative. Demystifying the Meese-Rogoff Puzzle will appeal to academics with an interest in exchange rate economics and international monetary economics. It will also be a useful resource for central banks and financial institutions.
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Moosa, I.; Burns, Kelly (2015)The Messe-Rogoff puzzle has been a debatable topic since 1983 when Richard Meese and Kenneth Rogoff demonstrated that no exchange rate model can outperform the random walk in out-of-sample forecasting. This finding been ...
Moosa, I.; Burns, Kelly (2014)Several explanations have been put forward for the Meese–Rogoff puzzle that exchange rate models cannot outperform the random walk in out-of-sample forecasting. We suggest that a simple explanation for the puzzle is the ...
Burns, Kelly; Moosa, I. (2017)Structural breaks have been suggested by several economists as a possible explanation for the Meese–Rogoff puzzle, in the sense that an exchange rate model can outperform the random walk in terms of the out-of-sample ...