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on International Finance |
| By: | Furlani, Luiz Gustavo C.; Portugal, Marcelo Savino; Laurini, Márcio Poletti |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_122&r=ifn |
| By: | Juan Zalduendo |
| Abstract: | This paper focuses on assessments of real exchange rates using PPP data and examines their limitations when these are based exclusively on bivariate estimations. It begins by presenting an analytical framework of the real exchange rate that shows that these estimations make many restrictive assumptions. In turn, the empirical evidence presented shows that the estimates are not robust to changes in sample, such as those that arise from differences in incomes per capita. The conclusion is that the bivariate assessment of real exchange rates do not control for the heterogeneity that exists across countries, thus limiting their usefulness. This critique of bivariate estimations does not apply however to multivariate approaches such as utilized by CGER |
| Keywords: | Working Paper , Exchange rates , Purchasing power parity , Prices , |
| Date: | 2008–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/153&r=ifn |
| By: | James M. Nason; John H. Rogers |
| Abstract: | Exchange rates have raised the ire of economists for more than twenty years. The problem is that few, if any, exchange rate models are known to systematically beat a naive random walk in out-of-sample forecasts. Engel and West (2005) show that these failures can be explained by the standard present value model (PVM) because it predicts random walk exchange rate dynamics if the discount factor approaches one and fundamentals have a unit root. This paper generalizes the Engel and West hypothesis to the larger class of open economy dynamic stochastic general equilibrium (DSGE) models. The Engel and West hypothesis is shown to hold for a canonical open economy DSGE model. We show that all the predictions of the standard PVM carry over to the DSGE PVM. The DSGE PVM also yields unobserved components (UC) models that we estimate using Bayesian methods and a quarterly Canadian-U.S. sample. Bayesian model evaluation reveals that the data support a UC model that calibrates the discount factor to one, implying the Canadian dollar–U.S. dollar exchange rate is a random walk dominated by permanent cross-country monetary and productivity shocks. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2008-16&r=ifn |
| By: | Mototsugu Shintani (Department of Economics, Vanderbilt University, and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: mototsugu.shintani@vanderbilt.edu, mototsugu.shintani@boj.or.jp)); Tomoyoshi Yabu (Assistant Professor, Graduate School of Systems and Information Engineering, University of Tsukuba (E-mail: tyabu@sk.tsukuba.ac.jp)); and Daisuke Nagakura (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: daisuke.nagakura@boj.or.jp)) |
| Abstract: | This paper investigates the spurious effect in forecasting asset returns when signals from technical trading rules are used as predictors. Against economic intuition, the simulation result shows that, even if past information has non predictive power, buy or sell signals based on the difference between the short-period and long-period moving averages of past asset prices can be statistically significant when the forecast horizon is relatively long. The theory implies that both e momentumf and econtrarianf strategies can be falsely supported, while the probability of obtaining each result depends on the type of the test statistics employed. Several modifications to these test statistics are considered for the purpose of avoiding spurious regressions. They are applied to the stock market index and the foreign exchange rate in order to reconsider the predictive power of technical trading rules. |
| Keywords: | Efficient market hypothesis, Nonstationary time series, Random walk, Technical analysis |
| JEL: | C12 C22 C25 G11 G15 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:08-e-9&r=ifn |