Richard Meese

Graduate School of Business
University of California, Berkeley
Berkeley, CA 94720

NBER Working Papers and Publications

May 1987Are Exchange Rates Excessively Variable?
with Jeffrey A. Frankel: w2249
"Unnecessary variation" is defined as variation not attributable to variation in fundamentals. In the absence of a good model of macroeconomic fundamentals, the question "are exchange rates excessively variable?" cannot be answered by comparing the variance of the actual exchange rate to the variance of a set of fundamentals. This paper notes the failure of regression equations to explain exchange rate movements even using contemporaneous macroeconomic variables. It notes as well the statistical rejections of the unbiasedness of the forward exchange rate as a predictor of the spot rate. It then argues that, given these results, there is not much to be learned from the variance-bounds tests and bubbles tests. The paper also discusses recent results on variation in the exchange risk premiums...


1987Are Exchange Rates Excessively Variable?
with Jeffrey A. Frankel
in NBER Macroeconomics Annual 1987, Volume 2, Stanley Fischer, editor
October 1985Was it Real? The Exchange Rate-Interest Differential Relation, 1973-1984
with Kenneth Rogoff: w1732
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 coint...


  • 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).

1983The Out-of-Sample Failure of Empirical Exchange Rate Models: Sampling Error or Misspecification?
with Kenneth Rogoff
in Exchange Rates and International Macroeconomics, Jacob A. Frenkel, editor
NBER Videos

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

Contact Us