The predictive information content of external imbalances for exchange rate returns: How much is it worth?

Review of Economics and Statistics

Volumn 94, Issue 1, 2012, Pages 100-115

  Corte, Pasquale Della ^a   Sarno, Lucio ^b,c   Sestieri, Giulia ^d  

^a IMPERIAL COLLEGE LONDON   (United Kingdom)

^b CITY UNIVERSITY   (United Kingdom)

^c CEPR   (United Kingdom)

^d Banque de France ^*  (France)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 84858611047     PISSN: 00346535     EISSN: 15309142     Source Type: Journal    
DOI: 10.1162/REST_a_00157     Document Type: Article

References (41)

1. Abhyankar, A., L. Sarno, and G. Valente, "Exchange Rates and Fundamentals: Evidence on the Economic Value of Predictability," Journal of International Economics 66:2 (2005), 325-348.
2. Akram, Q. F., D. Rime, and L. Sarno, "Arbitrage in the Foreign Exchange Market: Turning on the Microscope," Journal of International Economics 76:2 (2008), 237-253.
3. Aliber,R. Z., B. Chowdhry, and S.Yan, "Some Evidence That aTobinTax on Foreign Exchange Transactions May Increase Volatility," European Finance Review 7:3 (2003), 481-510.
4. Alquist, R., and M. D. Chinn, "Conventional and Unconventional Approaches to Exchange Rate Modeling and Assessment," International Journal of Finance and Economics 13:1 (2008), 2-13.
5. Bacchetta, P., and E. van Wincoop, "Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?" American Economic Review 96:3 (2006), 552-576.
6. Bank for International Settlements, Triennial Central Bank Survey of Foreign Exchange and Derivatives Market in 2007 (Basel: Bank for International Settlements Press, 2007)
7. Berkowitz, J., and L. Giorgianni, "Long-Horizon Exchange Rate Predictability?" this review 83:1 (2001), 81-91.
8. Campbell, J.Y., and R. Shiller, "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies 1:3 (1988), 195-228.
9. Clark, T. E., and K. D. West, "Approximately Normal Tests for Equal Predictive Accuracy in Nested Models," Journal of Econometrics 138:1 (2007), 291-311.
10. Della Corte, P., L. Sarno, and D. L. Thornton, "The Expectations Hypothesis of the Term Structure of Very Short-Term Rates: Statistical Tests and Economic Value," Journal of Financial Economics 89:1 (2008), 158-174.
11. Della Corte, P., L. Sarno, and I. Tsiakas, "An Economic Evaluation of Empirical Exchange Rate Models," Review of Financial Studies 22:9 (2009), 3491-3530.
12. Diebold, F. X., and R. S. Mariano, "Comparing Predictive Accuracy," Journal of Business and Economic Statistics 13:3 (1995), 253-263.
13. Elliott, G., and T. Ito, "Heterogeneous Expectations and Tests of Efficiency in the Yen/Dollar Forward Exchange Rate Market," Journal of Monetary Economics 43:2 (1999), 435-456.
14. Engel, C., N. Mark, and K. D. West, "Exchange Rate Models Are Not As Bad As You Think," in D. Acemoglou, K. Rogoff, and M.Woodford (Eds.), NBER Macroeconomics Annual 2007 (Chicago: University of Chicago Press, 2008).
15. Engel, C., and K. D. West, "Exchange Rates and Fundamentals," Journal of Political Economy 113:3 (2005), 485-517.
16. Fleming, J., C. Kirby, and B. Ostdiek, "The Economic Value of Volatility Timing," Journal of Finance 56:1 (2001), 329-352.
17. Fleming, J., C. Kirby, and B. Ostdiek, "The Economic Value of Volatility Timing Using 'Realized' Volatility," Journal of Financial Economics 67:3 (2003), 473-409.
18. Goetzmann, W., J. Ingersoll, M. Spiegel, and I. Welch, "Portfolio Performance Manipulation and Manipulation-Proof Performance Measures," Review of Financial Studies 20:5 (2007), 1503-1546.
19. Goldsmith, R. W., The National Balance Sheet of the United States, 1953-1980 (Chicago: University of Chicago Press, 1982).
20. Gonçalves, S., and H. White, "Bootstrap Standard Error Estimates for Linear Regression," Journal of the American Statistical Association 100:471 (2005), 970-979.
21. Gourinchas, P. O., and H. Rey, "International Financial Adjustment," Journal of Political Economy 115:4 (2007), 665-703.
22. Hall, P., J. Horowitz, and B. Y. Jing, "On Blocking Rules for the Bootstrap with Dependent Data," Biometrika 82:3 (1995), 561-574.
23. Han, Y., "Asset Allocation with a High Dimensional Latent Factor Stochastic Volatility Model," Review of Financial Studies 19:1 (2006), 237-271.
24. Hlawitschka, W., "The Empirical Nature of Taylor-Series Approximations to Expected Utility," American Economic Review 84:3 (1994), 713-719.
25. Kilian, L., "Exchange Rates and Monetary Fundamentals: What Do We Learn from Long-Horizon Regressions?" Journal of Applied Econometrics 14:5 (1999), 491-510.
26. Lane, P. R., and G. M. Milesi-Ferretti, "The External Wealth of Nation Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," Journal of International Economics 73:2 (2007), 223-250.
27. Leitch, G., and J. E. Tanner, "Economic Forecast Evaluation: Profits versus the Conventional Error Measures," American Economic Review 81:3 (1991), 580-590.
28. Lettau, M., and S. Ludvigson, "Consumption, Aggregate Wealth, and Expected Stock Returns," Journal of Finance 56:3 (2001), 815-849.
29. Mark, N. C., "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review 85:1 (1995), 201-218.
30. Marquering,W., and M.Verbeek, "The EconomicValue of Predicting Stock Index Returns and Volatility," Journal of Financial and Quantitative Analysis 39:2 (2004), 407-429.
31. Meese, R. A., and K. Rogoff, "Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?" Journal of International Economics 14:1-2 (1983), 3-24.
32. Obstfeld, M., and K. Rogoff, "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?" in B. Bernanke and K. Rogoff (Eds.), NBER Macroeconomics Annual 2000 (Chicago: University of Chicago Press, 2001).
33. Obstfeld, M., and K. Rogoff, "The Unsustainable U.S. Current Account Position Revisited," in R. H. Clarida (Ed.), G7 Current Account Imbalances: Sustainability and Adjustment (Chicago: University of Chicago Press, 2007).
34. Politis, D. N., and H. White, "Automatic Block-Length Selection for the Dependent Bootstrap," Econometric Reviews 23:1 (2004), 53-70.
35. Rogoff, K., and V. Stavrakeva, "The Continuing Puzzle of Short Horizon Exchange Rate Forecasting," NBER working paper no. 14071 (2008).
36. Rossi, B., "Testing Long-Horizon Predictive Ability with High Persistence, and the Meese-Rogoff Puzzle," International Economic Review 46:1 (2005), 61-92.
37. Rossi, B., "Are Exchange Rates Really Random Walks? Some Evidence Robust to Parameter Instability," Macroeconomic Dynamics 10:1 (2006), 20-38.
38. Sarno, L., "Towards a Solution to the Puzzles in Exchange Rate Economics: Where DoWe Stand?" Canadian Journal of Economics 38:3 (2005), 673-708.
39. Sarno, L., and G. Valente, "Exchange Rates and Fundamentals: Footloose or Evolving Relationship?" Journal of the European Economic Association 7:4 (2009), 786-830.
40. West, K. D., "Asymptotic Inference about Predictive Ability," Econometrica 64:5 (1996), 1067-1084.
41. West, K. D., H. J. Edison, and D. Cho, "A Utility-Based Comparison of Some Models of Exchange Rate Volatility," Journal of International Economics 35:1-2 (1993), 23-45.