This paper presents unprecedented exchange rate forecasting results, based upon a new model that approximates the gap …. The theoretical derivation of our forecasting equation is consistent with the monetary model of exchange rates. Our model … outperforms the random walk in out-of-sample forecasting of twelve major currency pairs over the short and long horizon forecasts …

product, which in turn are used as an input in the forecasting process. Such forecasts reflect and incorporate the flow of … in a synchronous way. The forecasting power of the dynamic factor model is compared with those of several other models …