Curtin University Homepage
  • Library
  • Help
    • Admin

    espace - Curtin’s institutional repository

    JavaScript is disabled for your browser. Some features of this site may not work without it.
    View Item 
    • espace Home
    • espace
    • Curtin Research Publications
    • View Item
    • espace Home
    • espace
    • Curtin Research Publications
    • View Item

    Error correction modelling and dynamic specifications as a conduit to outperforming the random walk in exchange rate forecasting

    Access Status
    Fulltext not available
    Authors
    Moosa, I.
    Burns, Kelly
    Date
    2014
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Moosa, I. and Burns, K. 2014. Error correction modelling and dynamic specifications as a conduit to outperforming the random walk in exchange rate forecasting. Applied Economics. 46 (25): pp. 3107-3118.
    Source Title
    Applied Economics
    DOI
    10.1080/00036846.2014.922675
    ISSN
    0003-6846
    URI
    http://hdl.handle.net/20.500.11937/7264
    Collection
    • Curtin Research Publications
    Abstract

    The proposition that dynamic exchange rate models can outperform the random walk in out-of-sample forecasting, in the sense that they produce lower mean square errors, is examined and disputed. By using several dynamic versions of three macroeconomic exchange rate models, it is demonstrated that dynamic specifications outperform the corresponding static models but improvement in the forecasting power may not be sufficient for the dynamic models to perform better than the random walk. The results are explained by suggesting that any dynamic specification or transformation of the static model leads to the introduction of a lagged dependent variable, which in effect is a random walk component. The analysis leads to the conclusion that it is implausible to aim at beating the random walk by augmenting a static model with a random walk component.

    Related items

    Showing items related by title, author, creator and subject.

    • 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 ...
    • Enhancing the forecasting power of exchange rate models by introducing nonlinearity: Does it work?
      Burns, Kelly; Moosa, I. (2015)
      It is demonstrated that the forecasting power of the flexible price monetary model of exchange rates can be enhanced by introducing dynamics through the use of a linear error correction specification. However, the ...
    Advanced search

    Browse

    Communities & CollectionsIssue DateAuthorTitleSubjectDocument TypeThis CollectionIssue DateAuthorTitleSubjectDocument Type

    My Account

    Admin

    Statistics

    Most Popular ItemsStatistics by CountryMost Popular Authors

    Follow Curtin

    • 
    • 
    • 
    • 
    • 

    CRICOS Provider Code: 00301JABN: 99 143 842 569TEQSA: PRV12158

    Copyright | Disclaimer | Privacy statement | Accessibility

    Curtin would like to pay respect to the Aboriginal and Torres Strait Islander members of our community by acknowledging the traditional owners of the land on which the Perth campus is located, the Whadjuk people of the Nyungar Nation; and on our Kalgoorlie campus, the Wongutha people of the North-Eastern Goldfields.