|Appears in Collections:||Accounting and Finance Journal Articles|
|Peer Review Status:||Refereed|
|Title:||Forecasting exchange rates: Non-linear adjustment and time-varying equilibrium|
|Citation:||Grossmann A & McMillan D (2010) Forecasting exchange rates: Non-linear adjustment and time-varying equilibrium, Journal of International Financial Markets, Institutions and Money, 20 (4), pp. 436-450.|
|Abstract:||By linking two main strands of equilibrium exchange rate research, this paper models and forecasts exchange rate movements around a time-varying equilibrium using both linear and non-linear techniques. Our results support evidence of linear and non-linear (ESTR) stationary behaviour around a time-varying equilibrium, particularly when using a trade based price index. The latter results are largely robust across a break due to the Plaza Accord. Forecasts of both the equilibrium deviations and exchange rates themselves are largely supportive of the ESTR model over several alternatives. This is notably so across most measures with respect to the equilibrium deviations and over the sign based measures for the exchange rate forecasts. Overall, our results suggest that shortrun changes in exchange rates are forecastable when allowing for a time-varying equilibrium rate and using an appropriate price index. Such a result has important implications for researchers, policy-makers and goods and financial market participants. For example, policy-makers need to be cognisant of a changing equilibrium level and not necessarily conduct policy in such a manner as to restore a previous equilibrium. Similarly, those engaged in hedging need to be aware that equilibrium rates are time varying but, beneficially, movements around equilibrium appear predictable.|
|Rights:||The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.|
|McMillan_2010_Forecasting_exchange_rates.pdf||562.84 kB||Adobe PDF||Under Permanent Embargo Request a copy|
Note: If any of the files in this item are currently embargoed, you can request a copy directly from the author by clicking the padlock icon above. However, this facility is dependent on the depositor still being contactable at their original email address.
This item is protected by original copyright
Items in the Repository are protected by copyright, with all rights reserved, unless otherwise indicated.
If you believe that any material held in STORRE infringes copyright, please contact email@example.com providing details and we will remove the Work from public display in STORRE and investigate your claim.