On fundamentals and exchange rates: a Casselian perspective

MacDonald, R. and Marsh, I. W. (1997) On fundamentals and exchange rates: a Casselian perspective. Review of Economics and Statistics, 79(4), pp. 655-664. (doi:10.1162/003465397557060)

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Abstract

Using an expanded version of the purchasing-power-parity condition we construct simultaneous equation models for three key exchange rates which incorporate meaningful long-run equilibrium relationships and complex short-run dynamics. We show that fully dynamic out-of-sample forecasts from these models are capable of significantly outperforming those of a random walk model over horizons as short as 3 months, and that they are also more accurate than the vast majority of professional forecasts.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:MacDonald, Professor Ronald
Authors: MacDonald, R., and Marsh, I. W.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Review of Economics and Statistics
Publisher:MIT Press
ISSN:0034-6535
ISSN (Online):1530-9142

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