Understanding forecast failure of ESTAR models of real exchange rates
Journal
Empirical Economics
ISSN
0377-7332
ISSN-Digital
1435-8921
Type
journal article
Date Issued
2012-08
Author(s)
Abstract
The forecast performance of the empirical ESTAR model of Taylor et al. (2001) is examined for 4 bilateral real exchange rate series over an out-of-sample evaluation period of nearly 12 years. Point as well as density forecasts are constructed, considering forecast horizons of 1 to 22 steps head. The study finds that no forecast gains over a simple AR(1) specification exist at any of the forecast horizons that are considered, regardless of whether point or density forecasts are utilised in the evaluation. Non-parametric methods are used in conjunction with simulation techniques to learn about the models and their forecasts. It is shown graphically that the nonlinearity in the conditional means (or point forecasts) of the ESTAR model decreases as the forecast horizon increases. The non-parametric methods show also that the multiple steps ahead forecast densities are normal looking with no signs of bi-modality, skewness or kurtosis.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Springer Verlag
Publisher place
Heidelberg
Volume
43
Number
1
Start page
399
End page
426
Pages
28
Subject(s)
Division(s)
Eprints ID
197104
File(s)![Thumbnail Image]()
open.access
Name
forecast.pdf
Size
1.85 MB
Format
Adobe PDF
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