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Structural models of exchange rate determination

Authors
Journal
Journal of Multinational Financial Management
1042-444X
Publisher
Elsevier
Publication Date
Volume
10
Issue
1
Identifiers
DOI: 10.1016/s1042-444x(99)00017-1
Keywords
  • Exchange Rate Forecasting
  • Structural Models
  • Kalman Filtering
  • State Space Modeling
Disciplines
  • Economics

Abstract

Abstract This study compares the forecasting accuracy of state space techniques based on the monetary models of exchange rate with univariate and random walk models for four countries. It is found that these structural models outperform ARIMA and random walk models for all four countries. A state space vector that contains variables based on the monetary model easily outperforms random walk as well as ARIMA models for France, Germany, UK, and Japan during the sample period of this study.

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