Exchange rate predictability in a changing world

Byrne, J., Korobilis, D. and Ribeiro, P. J. (2016) Exchange rate predictability in a changing world. Journal of International Money and Finance, 62, pp. 1-24. (doi: 10.1016/j.jimonfin.2015.12.001)

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An expanding literature articulates the view that Taylor rules are helpful in predicting exchange rates. In a changing world, however, Taylor rule parameters may be subject to structural instabilities, for example in the aftermath of the Global Financial Crisis. This paper forecasts exchange rates using Taylor rules with Time-Varying Parameters (TVP) estimated by Bayesian methods. Focusing on the data from the crisis, we improve upon the random walk for at least half, and for as many as seven out of 10, of the currencies considered. Results are stronger when we allow the TVP of the Taylor rules to differ between countries.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Korompilis Magkas, Professor Dimitris and Byrne, Dr Joseph
Authors: Byrne, J., Korobilis, D., and Ribeiro, P. J.
Subjects:H Social Sciences > HG Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of International Money and Finance
Publisher:Pergamon Press
ISSN (Online):1873-0639
Copyright Holders:Copyright © 2015 Elsevier Ltd.
First Published:First published in Journal of International Money and Finance 62:1-24
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher
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