Template-Type: ReDIF-Paper 1.0
Author-Name: E Pavlidis
Author-Name-First: E
Author-Name-Last: Pavlidis
Author-Name: I Paya
Author-Name-First: I
Author-Name-Last: Paya
Author-Name: D Peel
Author-Name-First: D
Author-Name-Last: Peel
Title: Forecasting the Real Exchange Rate using a Long
Span of Data. A Rematch: Linear vs Nonlinear
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.
Creation-Date: 2009
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LongSpanData.pdf
File-Format: application/pdf
Number: 601190
Classification-JEL: 
Keywords: Real Exchange Rate, Nonlinearity, Robust Linearity Tests, ForecastEvaluation, Bootstrapping.
Handle: RePEc:lan:wpaper:601190