We propose a local adaptive multiplicative error model (MEM) accommodating time-varying parameters. MEM parameters are adaptively estimated based on a sequential testing procedure. A data-driven optimal length of local windows is selected, yielding adaptive forecasts at each point in time....

A huge body of empirical and theoretical literature has emerged on the relationship between foreign exchange (FX) uncertainty and international trade. Empirical findings about the impact of FX uncertainty on trade figures are at best weak and often ambiguous with respect to its direction. Almost...