Can Macroeconomists Get Rich Forecasting Exchange Rates?

Costantini, Mauro and Crespo-Cuaresma, Jesús and Hlouskova, Jaroslava (September 2014) Can Macroeconomists Get Rich Forecasting Exchange Rates? IHS Economics Series 305, 37 p.

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Abstract or Table of Contents

We provide a systematic comparison of the out-of-sample forecasts based on multivariate macroeconomic models and forecast combinations for the euro against the US dollar, the British pound, the Swiss franc and the Japanese yen. We use profit maximization measures based on directional accuracy and trading strategies in addition to standard loss minimization measures. When comparing predictive accuracy and profit measures, data snooping bias free tests are used. The results indicate that forecast combinations help to improve over benchmark trading strategies for the exchange rate against the US dollar and the British pound, although the excess return per unit of deviation is limited. For the euro against the Swiss franc or the Japanese yen, no evidence of generalized improvement in profit measures over the benchmark is found.

Item Type: IHS Series
Keywords: Exchange rate forecasting, forecast combination, multivariate time series models, profitability
Classification Codes (e.g. JEL): JEL codes: C53, F31, F37
Status: Published
Date Deposited: 02 Feb 2015 15:16
Last Modified: 22 Jul 2017 07:48
URI: http://irihs.ihs.ac.at/id/eprint/2907

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