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How Well Do Monetary Fundamentals Forecast Exchange Rates? (ICPSR 1268)

Principal Investigator(s): Neely, Christopher J., Federal Reserve Bank of St. Louis; Sarno, Lucio, University of Warwick

Summary:

For many years after the seminal work of Meese and Rogoff (1983a), conventional wisdom held that exchange rates could not be forecast from monetary fundamentals. Monetary models of exchange rate determination were generally unable to beat even a naive no-change model in out-of-sample forecasting. More recently, the use of sophisticated econometric techniques, panel data, and long spans of data has convinced some researchers (Mark and Sul, 2001) that monetary models can forecast a small, but statistically significant part of the variation in exchange rates. Others remain skeptical, however (Rapach and Wohar, 2001b, Faust, Rogers, and Wright, 2001). It remains a puzzle why even the most supportive studies find such a small predictable component to exchange rates. This article reviews the literature on forecasting exchange rates with monetary fundamentals and speculates as to why it remains so difficult.

Access Notes

  • These data are flagged as replication datasets and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.

  • The public-use data files in this collection are available for access by the general public. Access does not require affiliation with an ICPSR member institution.

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Study Description

Citation

Neely, Christopher J., and Lucio Sarno. How Well Do Monetary Fundamentals Forecast Exchange Rates?. ICPSR01268-v1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2003-06-05. http://doi.org/10.3886/ICPSR01268.v1

Persistent URL: http://doi.org/10.3886/ICPSR01268.v1

1
http://www.icpsr.umich.edu/files/ICPSR/datacatalog.json
http://www.icpsr.umich.edu/icpsrweb/ICPSR/1268/terms

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Scope of Study

Subject Terms:   econometrics, economic indicators, economic models, economic trends, exchange rates, prediction

Geographic Coverage:   United States

Data Collection Notes:

(1) Files submitted are the program file, 0209cnp.txt, and the data file, 0209cnd.txt. (2) These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.

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