Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/64099
Authors: 
Alquist, Ron
Chinn, Menzie D.
Year of Publication: 
2006
Series/Report no.: 
Working Papers, Santa Cruz Center for International Economics 06-05
Abstract: 
We examine the relative predictive power of the sticky price monetary model, uncovered interest parity, and a transformation of the net exports variable. In addition to bringing a new approach (utilizing our measure of external imbalance suggested by Gourinchas and Rey) and data spanning a more recent period to bear, we implement the Clark and West (forthcoming) procedure for testing the significance of out-of-sample forecasts. The interest rate parity relation holds better at long horizons and the net exports variable does well in predicting exchange rates at short horizons in-sample. In out-of-sample forecasts, we find evidence that uncovered interest parity outperforms a random walk at long horizons and that the measure of external imbalance does well at short horizons, although we cannot duplicate the findings of Gourinchas and Rey.
Subjects: 
exchange rates
monetary model
net foreign assets
interest rate parity
forecasting performance
JEL: 
F31
F47
Document Type: 
Working Paper

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