Forecasting Exchange Rates Out-Of-Sample With Panel Methods And Real-Time Data

ASU Author/Contributor (non-ASU co-authors, if there are any, appear on document)
Onur Ince Ph.D., Assistant Professor (Creator)
Appalachian State University (ASU )
Web Site:

Abstract: This paper evaluates out-of-sample exchange rate forecasting with Purchasing Power Parity (PPP) and Taylor rule fundamentals for 9 OECD countries vis-à-vis the U.S. dollar over the period from 1973:Q1 to 2009:Q1 at short and long horizons. In contrast with previous work, which reports “forecasts” using revised data, I construct a quarterly real-time dataset that incorporates only the information available to market participants when the forecasts are made. Using bootstrapped out-of-sample test statistics, the exchange rate model with Taylor rule fundamentals performs better at the one-quarter horizon and panel specifications are not able to improve its performance. The PPP model, however, forecasts better at the 16-quarter horizon and its performance increases with the panel framework. The results are in accord with previous research on long-run PPP and estimation of Taylor rule models.

Additional Information

Ince, O. (2014). "Forecasting Exchange Rates Out-of-Sample with Panel Methods and Real-Time Data." Journal of International Money and Finance, 2014, vol. 43, pp.1-18. Publisher version of record available at:
Language: English
Date: 2014
Exchange Rate Forecasting, Taylor Rules, Real-Time Data, Out-of-Sample Test Statistics

Email this document to