NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Was it Real? The Exchange Rate-Interest Differential Relation, 1973-1984

Richard Meese, Kenneth Rogoff

NBER Working Paper No. 1732 (Also Reprint No. r1127)
Issued in October 1985
NBER Program(s):   ITI   IFM

The main result of Meese and Rogoff [1983 a,b] is that small structural exchange rate models forecast major dollar exchange rates no better than a naive random walk model. This result obtains even when the model forecasts are based on actual realized values of the explanatory variables. Here we improve our methodology by implementing a new test of out-of-sample fit; the test is valid even for overlapping long-horizon forecasts. We find that the dollar exchange rate models perform somewhat less badly over the recent Reagan regime period than over the episodes studied previously. The methodology is also applied to the mark/yen and mark/pound exchange rates, and to real exchange rates. Finally, we test to see if real exchange rates and real interest differentials can be represented as a cointegrated process. The evidence suggests that there is no single common influence inducing nonstationarity in both real exchange rates and real interest differentials.

download in pdf format
   (353 K)

email paper

This paper is available as PDF (353 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1732

Published:

  • Meese, Richard and Kenneth Rogoff. "Was It Real? The Exchange Rate-Interest Differential Relation: 1973-1984". Journal of Economic Dynamics and Control, Vol. 10, no. 1-2, (June 1986), pp. 297-298. citation courtesy of
  • Meese, Richard and Kenneth Rogoff. "Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period". The Journal of Finance, Vol. XLIII, No. 4, pp. 933-948, (September 1988).

Users who downloaded this paper also downloaded these:
Meese and Rogoff The Out-of-Sample Failure of Empirical Exchange Rate Models: Sampling Error or Misspecification?
Fogel and Grotte w16938 An Overview of The Changing Body: Health, Nutrition, and Human Development in the Western World Since 1700
Froot and Rogoff w4952 Perspectives on PPP and Long-Run Real Exchange Rates
Litterman and Weiss w1077 Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data
Reinhart and Rogoff w8963 The Modern History of Exchange Rate Arrangements: A Reinterpretation
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us