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    A reappraisal of the Meese–Rogoff puzzle

    Access Status
    Fulltext not available
    Authors
    Moosa, I.
    Burns, Kelly
    Date
    2014
    Type
    Journal Article
    
    Metadata
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    Citation
    Moosa, I. and Burns, K. 2014. A reappraisal of the Meese–Rogoff puzzle. Applied Economics. 46 (1): pp. 30-40.
    Source Title
    Applied Economics
    DOI
    10.1080/00036846.2013.829202
    ISSN
    0003-6846
    URI
    http://hdl.handle.net/20.500.11937/5932
    Collection
    • Curtin Research Publications
    Abstract

    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 use of the root mean square error (RMSE) to measure forecasting accuracy, presenting a rationale as to why it is difficult to beat the random walk in terms of the RMSE. By using exactly the same exchange rates, time periods and estimation methods as those of Meese and Rogoff, we find that their results cannot be overturned even if the models are estimated with time-varying coefficients. However, we also find that the random walk can be outperformed by the same models if forecasting accuracy is measured in terms of the ability to predict direction, in terms of a measure that combines magnitude and direction and in terms of profitability.

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    • The Meese-Rogoff Puzzle: What Puzzle?
      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 ...
    • The unbeatable random walk in exchange rate forecasting: Reality or myth?
      Moosa, I.; Burns, Kelly (2014)
      It is demonstrated that the conventional monetary model of exchange rates can (irrespective of the specification, estimation method or the forecasting horizon) outperform the random walk in out-of-sample forecasting if ...
    • Demystifying the Meese–Rogoff puzzle: structural breaks or measures of forecasting accuracy?
      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 ...
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