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Can panel data really improve the predictability of the monetary exchange rate model?

Version 2 2024-06-03, 16:01
Version 1 2015-09-07, 14:44
journal contribution
posted on 2024-06-03, 16:01 authored by Joakim WesterlundJoakim Westerlund, SA Basher
A common explanation for the inability of the monetary model to beat the random walk in forecasting future exchange rates is that conventional time series tests may have low power, and that panel data should generate more powerful tests. This paper provides an extensive evaluation of this power argument to the use of panel data in the forecasting context. In particular, by using simulations it is shown that although pooling of the individual prediction tests can lead to substantial power gains, pooling only the parameters of the forecasting equation, as has been suggested in the previous literature, does not seem to generate more powerful tests. The simulation results are illustrated through an empirical application. Copyright © 2007 John Wiley & Sons, Ltd.

History

Journal

Journal of forecasting

Volume

26

Pagination

365-383

Location

London, Eng.

ISSN

0277-6693

eISSN

1099-131X

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2007, John Wiley & Sons

Issue

5

Publisher

Wiley