On the sources of uncertainty in exchange rate predictability

Byrne, J. P., Korobilis, D. and Ribeiro, P. J. (2018) On the sources of uncertainty in exchange rate predictability. International Economic Review, 59(1), pp. 329-357. (doi: 10.1111/iere.12271)

128611.pdf - Accepted Version



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 which embed a high-degree of coefficient variability yield forecast improvements at horizons beyond 1-month. At the 1-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.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Korompilis Magkas, Professor Dimitris and RIBEIRO, Pinho Jose and Byrne, Dr Joseph
Authors: Byrne, J. P., Korobilis, D., and Ribeiro, P. J.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:International Economic Review
ISSN (Online):1468-2354
Published Online:28 November 2017
Copyright Holders:Copyright © 2017 Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
First Published:First published in International Economic Review 59(1):329-357
Publisher Policy:Reproduced in accordance with the publisher copyright policy

University Staff: Request a correction | Enlighten Editors: Update this record