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Forecasting the Real Exchange Rate using a Long Span of Data. A Rematch: Linear vs Nonlinear

Pavlidis, E and Paya, I and Peel, D (2009) Forecasting the Real Exchange Rate using a Long Span of Data. A Rematch: Linear vs Nonlinear. Working Paper. The Department of Economics, Lancaster University.

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    Abstract

    This paper deals with the nonlinear modeling and forecasting of the dollar-sterling real exchange rate using a long span of data. Our contribution is threefold. First, we provide significant evidence of smooth transition dynamics in the series by employing a battery of recently developed in-sample statistical tests. Second, we investigate the small sample properties of several evaluation measures for comparing recursive forecasts when one of the competing models is nonlinear. Finally, we run a forecasting race for the post-Bretton Woods era between the nonlinear real exchange rate model, the random walk, and the linear autoregressive model. The winner turns out to be the nonlinear model, against the odds.

    Item Type: Monograph (Working Paper)
    Uncontrolled Keywords: Real Exchange Rate ; Nonlinearity ; Robust Linearity Tests ; Forecast Evaluation ; Bootstrapping.
    Subjects:
    Departments: Lancaster University Management School > Economics
    ID Code: 48966
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 22:25
    Refereed?: No
    Published?: Published
    Last Modified: 27 Jul 2012 01:19
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/48966

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