Economics, Econometrics and Finance
3 years ago

New study reveals key to predicting exchange rates and economic stability

The predictive power of equilibrium exchange rate models
Michele Ca’ Zorzi, Pablo Anaya Longaric, Michał Rubaszek

Paper Summary

The article reviews three models that predict exchange rates and finds that real exchange rates adjust over time to their estimated equilibria in the PPP and BEER models. This adjustment helps forecast real and nominal exchange rates, with most of the forecasting power coming from the mean-reverting properties of real exchange rates rather than economic fundamentals.

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