NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Vania Stavrakeva

London Business School
Regent's Park
London
NW1 4SA
United Kingdom

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NBER Working Papers and Publications

June 2008The Continuing Puzzle of Short Horizon Exchange Rate Forecasting
with Kenneth S. Rogoff: w14071
Are structural models getting closer to being able to forecast exchange rates at short horizons? Here we argue that misinterpretation of some new out-of-sample tests for nested models, over-reliance on asymptotic test statistics, and failure to sufficiently check robustness to alternative time windows have led many studies to overstate even the relatively thin positive results that have been found. We find that by allowing for common cross-country shocks in our panel forecasting specification, we are able to generate some improvement, but even that improvement is not entirely robust to the forecast window, and much of the gain appears to come from non-structural rather than structural factors.
 
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