This paper sought to address the question as to whether the exchange rate can be forecasted more accurately by a monetary model of exchange rate determination or the random walk in the case of the Japan-U.S. exchange rate.
The evidence of Meese and Rogoff (1983) on the out-of-sample forecasting performance of structural exchange rate models in comparison to the random walk model portrays a disappointing picture of structural models. I re-considered the issue for the Japanese yen for a more recent period. Besides out-of-sample evidence, within-sample evidence was also examined.
The recent work of Phillips and Perron was employed so as to verify that the exchange rate series is well approximated by a random walk model without drift but with time dependent heteroscedasticity. Having established this benchmark, structural monetary models are constructed to see whether one can obtain better within-sample and/or out-of-sample results. It appeared that the random walk can be beaten.
| Identifer | oai:union.ndltd.org:RICE/oai:scholarship.rice.edu:1911/13295 |
| Date | January 1988 |
| Creators | Kwon, Jae-Jung |
| Contributors | Brown, Bryan W. |
| Source Sets | Rice University |
| Language | English |
| Detected Language | English |
| Type | Thesis, Text |
| Format | 65 p., application/pdf |
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