English, Article, Journal or magazine article edition: Nonlinear Exchange Rate Predictability Carlos Felipe Lopez Suarez; Jose Antonio Rodriguez Lopez

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Bookmark: http://trove.nla.gov.au/version/34030
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Nonlinear Exchange Rate Predictability
Author
  • Carlos Felipe Lopez Suarez
  • Jose Antonio Rodriguez Lopez
Physical Description
  • preprint
Notes
  • We study whether the nonlinear behavior of the real exchange rate can help us account for the lack of predictability of the nominal exchange rate. We construct a smooth nonlinear error-correction model that allows us to test the hypotheses of nonlinear predictability of the nominal exchange rate and nonlinear behavior on the real exchange rate in the context of a fully specified cointegrated system. Using a panel of 19 countries and three numeraires, we find strong evidence of nonlinear predictability of the nominal exchange rate and of nonlinear mean reversion of the real exchange rate. Out-of-sample Theil's U-statistics show a higher forecast precision of the nonlinear model than the one obtained with a random walk specification. The statistical significance of the out-of-sample results is higher for short-run horizons, specially for one-quarter-ahead forecasts.
  • Exchange rates; Predictability; Nonlinearities; Purchasing power parity
  • RePEc:irv:wpaper:080911
Language
  • English
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