Hauzenberger, Niko, Huber, Florian. 2018. Model instability in predictive exchange rate regressions.
BibTeX
Abstract
In this paper we aim to improve existing empirical exchange rate models by accounting for uncertainty with respect to the underlying structural representation. Within a flexible Bayesian non-linear time series framework, our modeling approach assumes that different regimes are characterized by commonly used structural exchange rate models, with their evolution being driven by a Markov process. We assume a time-varying transition probability matrix with transition probabilities depending on a measure of the monetary policy stance of the central bank at the home and foreign country. We apply this model to a set of eight exchange rates against the US dollar. In a forecasting exercise, we show that model evidence varies over time and a model approach that takes this empirical evidence seriously yields improvements in accuracy of density forecasts for most currency pairs considered.
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Status of publication | Published |
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Affiliation | WU |
Type of publication | Working/discussion paper, preprint |
Language | English |
Title | Model instability in predictive exchange rate regressions |
Year | 2018 |
URL | https://arxiv.org/abs/1811.08818 |
JEL | C30, E32, E52, F31 |
Associations
- Projects
- Modeling and forecasting exchange rates in an unified econometric framework
- People
- Hauzenberger, Niko (Details)
- Huber, Florian (Former researcher)
- Organization
- Institute for Macroeconomics IN (Details)
- Research areas (Ă–STAT Classification 'Statistik Austria')
- 5323 Econometrics (Details)
- 5371 Macroeconomics (Details)