Skip to main content
Duke University Libraries
View Item 
  •   DukeSpace
  • Duke Scholarly Works
  • Scholarly Articles
  • View Item
  •   DukeSpace
  • Duke Scholarly Works
  • Scholarly Articles
  • View Item
    • Login
    JavaScript is disabled for your browser. Some features of this site may not work without it.

    Are Exchange Rates Really Random Walks? Some Evidence Robust To Parameter Instability

    Thumbnail
    View / Download
    249.5 Kb
    Date
    2006-02
    Author
    Rossi, Barbara
    Repository Usage Stats
    524
    views
    3,464
    downloads
    Abstract
    Many authors have documented that it is challenging to explain exchange rate fluctuations with macroeconomic fundamentals: a random walk forecasts future exchange rates better than existing macroeconomic models. This paper applies newly developed tests for nested model that are robust to the presence of parameter instability. The empirical evidence shows that for some countries we can reject the hypothesis that exchange rates are random walks. This raises the possibility that economic models were previously rejected not because the fundamentals are completely unrelated to exchange rate fluctuations, but because the relationship is unstable over time and, thus, difficult to capture by Granger Causality tests or by forecast comparisons. We also analyze forecasts that exploit the time variation in the parameters and find that, in some cases, they can improve over the random walk.
    Type
    Journal article
    Subject
    Forecasting
    Parameter instability
    Random walks
    exchange rates
    Permalink
    https://hdl.handle.net/10161/2601
    Collections
    • Scholarly Articles
    More Info
    Show full item record
    Open Access

    Articles written by Duke faculty are made available through the campus open access policy. For more information see: Duke Open Access Policy

    Rights for Collection: Scholarly Articles

     

     

    Search Scope

    Browse

    All of DukeSpaceCommunities & CollectionsAuthorsTitlesTypesBy Issue DateDepartmentsAffiliations of Duke Author(s)SubjectsBy Submit DateThis CollectionAuthorsTitlesTypesBy Issue DateDepartmentsAffiliations of Duke Author(s)SubjectsBy Submit Date

    My Account

    LoginRegister

    Statistics

    View Usage Statistics