On the sources of uncertainty in exchange rate predictability
Byrne, Joseph P. and Korobilis, Dimitris and Ribeiro, Pinho J. (2018) On the sources of uncertainty in exchange rate predictability. International Economic Review, 59 (1). pp. 329-357. ISSN 0020-6598 (https://doi.org/10.1111/iere.12271)
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Abstract
In a unified framework, we examine four sources of uncertainty in exchange rate forecasting models: (i) random variations in the data, (ii) estimation uncertainty, (iii) uncertainty about the degree of time variation in coefficients, and (iv) uncertainty regarding the choice of the predictor. We find that models that embed a high degree of coefficient variability yield forecast improvements at horizons beyond one month. At the one-month horizon, and apart from the standard variance implied by unpredictable fluctuations in the data, the second and third sources of uncertainty listed above are key obstructions to predictive ability. The uncertainty regarding the choice of the predictors is negligible.
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Item type: Article ID code: 79340 Dates: DateEvent1 February 2018Published28 November 2017Published Online15 September 2017AcceptedSubjects: Social Sciences > Economic Theory Department: Strathclyde Business School > Economics Depositing user: Pure Administrator Date deposited: 27 Jan 2022 14:52 Last modified: 28 Sep 2024 00:47 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/79340