Heterogeneous expectations, exchange rate dynamics and predictability

Autor(en): Manzan, Sebastiano
Westerhoff, Frank H.
Stichwörter: BELIEFS; Business & Economics; Economics; exchange rates; FIT; forecasting; FUNDAMENTALS; heterogeneous expectations; nonlinear models; RATE MODELS
Erscheinungsdatum: 2007
Herausgeber: ELSEVIER
Journal: JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volumen: 64
Ausgabe: 1
Startseite: 111
Seitenende: 128
Zusammenfassung: 
This paper proposes a simple chartist-fundamentalist model in which we allow for nonlinear time variation in chartists' extrapolation rate. Estimation of the model using monthly data for the major currencies vis-a-vis the US dollar shows that the model is significant in-sample and that it has out-of-sample predictive power for some of the currencies. We investigate the power of tests of the random walk model to detect predictability against the alternative of the proposed model. We find that the evidence of short-term unpredictability and the long-term predictability are consistent with our model. (c) 2007 Elsevier B.V. All rights reserved.
ISSN: 01672681
DOI: 10.1016/j.jebo.2006.08.005

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