Hauzenberger, Niko, Huber, Florian. 2019. Model instability in predictive exchange rate regressions. Journal of Forecasting.
BibTeX
Abstract
In this paper we aim to improve existing empirical exchange rate models by accounting for uncertainty with respect to the underlying structural representation. Within a flexible Bayesian framework, our modeling approach assumes that different regimes are characterized by commonly used structural exchange rate models, with transitions across regimes being driven by a Markov process. We assume a time‐varying transition probability matrix with transition probabilities depending on a measure of the monetary policy stance of the central bank at home and in the USA. We apply this model to a set of eight exchange rates against the US dollar. In a forecasting exercise, we show that model evidence varies over time, and a model approach that takes this empirical evidence seriously yields more accurate density forecasts for most currency pairs considered.
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Status of publication | Published |
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Affiliation | WU |
Type of publication | Journal article |
Journal | Journal of Forecasting |
Citation Index | SSCI |
WU Journalrating 2009 | A |
WU-Journal-Rating new | FIN-A, INF-A, MAR-B, STRAT-B, VW-D, WH-B |
Language | English |
Title | Model instability in predictive exchange rate regressions |
Year | 2019 |
URL | https://onlinelibrary.wiley.com/doi/full/10.1002/for.2620 |
DOI | https://doi.org/10.1002/for.2620 |
Open Access | Y |
Open Access Link | https://onlinelibrary.wiley.com/doi/full/10.1002/for.2620 |
JEL | C30, E32, E52, F31 |
Associations
- Projects
- High-dimensional statistical learning: New methods to advance economic and sustainability policies
- Modeling and forecasting exchange rates in an unified econometric framework
- People
- Hauzenberger, Niko (Former researcher)
- Huber, Florian (Former researcher)
- Organization
- Department of Economics (Crespo Cuaresma) (Details)
- Research areas (ÖSTAT Classification 'Statistik Austria')
- 5323 Econometrics (Details)
- 5371 Macroeconomics (Details)