Discussion Papers no. 340
The importance of interest rates for forecasting the exchange rate
This study compares the forecasting performance of a structural exchange rate model that combines the purchasing power parity condition with the interest rate differential in the long run, with some alternative models. The analysis is applied to the Norwegian exchange rate. The long run equilibrium relationship is embedded in a parsimonious representation for the exchange rate. The structural exchange rate representation is stable over the sample and outperforms a random walk in an out-of-sample forecasting exercise at one to four horizons. Ignoring the interest rate differential in the long run, however, the structural model no longer outperforms a random walk.
Om publikasjonen
- Tittel
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The importance of interest rates for forecasting the exchange rate
- Ansvarlige
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Hilde Christiane Bjørnland, Håvard Hungnes
- Serie og -nummer
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Discussion Papers no. 340
- Utgiver
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Statistics Norway
- Emne
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Discussion Papers
- Antall sider
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21
- Målform
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Engelsk
- Om Discussion Papers
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Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.
Kontakt
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