A Selective Survey of Subsequent Studies
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The literature on the Meese-Rogoff puzzle deals with attempts to resolve the puzzle and overturn the Meese and Rogoff results. While various studies show that the results cannot be overturned, some economists have claimed victory over the random walk, but most of these claims are groundless. A conclusion like this is reached either without appropriate statistical testing to find out if the difference in the root mean square errors is statistically significant or through the use of dynamic models, which amounts to beating the random walk with a random walk. The literature also deals with various issues such as the effect of the forecasting horizon and whether the appropriate benchmark should be the random walk with or without drift.
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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 ...
Moosa, I.; Burns, Kelly (2016)We examine the proposition that the random walk without drift is more powerful in predicting exchange rates than the random walk with drift. It is demonstrated that there is no theoretical reason why the random walk without ...
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 ...