A reappraisal of the meese-rogoff puzzle

Moosa, I and Burns, K 2013, 'A reappraisal of the meese-rogoff puzzle', Applied Economics, vol. 46, no. 1, pp. 30-40.

Document type: Journal Article
Collection: Journal Articles

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Title A reappraisal of the meese-rogoff puzzle
Author(s) Moosa, I
Burns, K
Year 2013
Journal name Applied Economics
Volume number 46
Issue number 1
Start page 30
End page 40
Total pages 11
Publisher Routledge
Abstract Several explanations have been put forward for the Meese and Rogoff puzzle that exchange rate models cannot outperform the random walk in out-of-sample forecasting. We suggest that a simple explanation for the puzzle is the use of the root mean square error (RMSE) to measure forecasting accuracy, presenting a rationale as to why it is difficult to beat the random walk in terms of the RMSE. By using exactly the same exchange rates, time periods and estimation methods as those of Meese and Rogoff, we find that their results cannot be overturned even if the models are estimated with time-varying coefficients. However, we also find that the random walk can be outperformed by the same models if forecasting accuracy is measured in terms of the ability to predict direction, in terms of a measure that combines magnitude and direction and in terms of profitability.
Subject Macroeconomics (incl. Monetary and Fiscal Theory)
Keyword(s) forecasting
random walk
exchange rate models
direction accuracy
DOI - identifier 10.1080/00036846.2013.829202
Copyright notice © 2013 Taylor & Francis
ISSN 0003-6846
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Citation counts: TR Web of Science Citation Count  Cited 14 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 11 times in Scopus Article | Citations
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