Marcellino, Massimiliano, Abbate, Angela, (2017), “Reducing the ucnertainty around exchange rate forecasts: A new model”, VoxEu, 4 February
Exchange rates are important contributors to business cycle fluctuations in open economies. Forecasting exchange rates is not an easy task, however, perhaps due to the instability of their relationship with economic drivers. This column introduces a model that also allows for changing volatility when forecasting exchange rates. Modelling time variation in the cross-rate relationships, and in the volatilities of the shocks hitting the economic system, significantly improves forecasts.
Relevant Posts
- Tovar Jalles, Joao, Mulas-Granados, Carlos, Tavares, José, (2016), “Fiscal Discipline and Exchange Rates : Does Politics Matter?”, IMF Working Paper 16/230, 18 November
- Della Corte, Pasquale, Riddiough, Steven, Sarno, Lucio, (2016), “Global imbalance risk and exchange rates”, Voxeu, 29 February