Exchange rate predictability in a changing world

Byrne, J and Korobilis, D and Ribeiro, PJ (2016) 'Exchange rate predictability in a changing world.' Journal of International Money and Finance, 62. 1 - 24. ISSN 0261-5606

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Official URL: http://dx.doi.org/10.1016/j.jimonfin.2015.12.001

Abstract

An expanding literature articulates the view that Taylor rules are helpful in predicting exchange rates. In a changing world, however, Taylor rule parameters may be subject to structural instabilities, for example in the aftermath of the Global Financial Crisis. This paper forecasts exchange rates using Taylor rules with Time-Varying Parameters (TVP) estimated by Bayesian methods. Focusing on the data from the crisis, we improve upon the random walk for at least half, and for as many as seven out of 10, of the currencies considered. Results are stronger when we allow the TVP of the Taylor rules to differ between countries.

Item Type:	Article
Uncontrolled Keywords:	Exchange rate forecasting; Taylor rules; Time-varying parameters; Bayesian methods
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User:	Jim Jamieson
Date Deposited:	23 Nov 2016 12:45
Last Modified:	07 Aug 2019 21:15
URI:	http://repository.essex.ac.uk/id/eprint/17945

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