How Well Do Monetary Fundamentals Forecast Exchange Rates?

Resource Type
Dataset : survey data
  • Neely, Christopher J. (Federal Reserve Bank of St. Louis)
  • Sarno, Lucio (University of Warwick)
Other Title
  • Version 1 (Subtitle)
Publication Date
Free Keywords
econometrics; economic indicators; economic models; economic trends; exchange rates; prediction
  • Abstract

    For many years after the seminal work of Meese and Rogoff (1983a), conventional wisdom held that exchange rates could not be forecast from monetary fundamentals. Monetary models of exchange rate determination were generally unable to beat even a naive no-change model in out-of-sample forecasting. More recently, the use of sophisticated econometric techniques, panel data, and long spans of data has convinced some researchers (Mark and Sul, 2001) that monetary models can forecast a small, but statistically significant part of the variation in exchange rates. Others remain skeptical, however (Rapach and Wohar, 2001b, Faust, Rogers, and Wright, 2001). It remains a puzzle why even the most supportive studies find such a small predictable component to exchange rates. This article reviews the literature on forecasting exchange rates with monetary fundamentals and speculates as to why it remains so difficult.
  • Table of Contents


    • DS1: Dataset
Geographic Coverage
  • United States
Collection Mode
  • (1) Files submitted are the program file, 0209cnp.txt, and the data file, 0209cnd.txt. (2) These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.

This study is freely available to the general public via web download.
Alternative Identifiers
  • 1268 (Type: ICPSR Study Number)
  • Neely, Christopher J., Sarno, Lucio. How well do monetary fundamentals forecast exchange rates?. Federal Reserve Bank of St. Louis Review.84, (5), 51-74.2002.

Update Metadata: 2015-08-05 | Issue Number: 6 | Registration Date: 2015-06-15