We reassess exchange rate prediction using a wider set of models that have been proposed in the last decade. The performance of these models is compared against two reference specifications-purchasing power parity and the sticky-price monetary model. The models are estimated in first-difference...

We develop a simple model of the exchange rate in which agents optimize their portfolio and use different forecasting rules. They check the profitability of these rules ex post and select the more profitable one.This model produces two kinds of equilibria, a fundamental and a bubble one. In a...

This paper explores the impact of the exchange rate regime on inflation and output in the Central and Eastern European (CEE) EU candidate countries. The panel estimations for the period between 1994 and 2002 show that de facto measures of exchange rate stability have a better explanatory power...

In this paper, we investigate the behavior of the exchange rate within the framework of an asset pricing model. We assume boundedly rational agents who use simple rules to forecast the future exchange rate. They test these rules continuously using two learning mechanisms. The first one, the...

This paper investigates the out-of-sample forecast performance of a set of competing models of exchange rate determination. We compare standard linear models with models that characterize the relationship between exchange rate and its underlying fundamentals by nonlinear dynamics. Linear models...

The target zone model of Krugman (1991) has failed empirically. In this paper, we develop a model of the exchange rate with heterogeneous agents in a free floating and a target zone regime. We show that this simple model mimics the empirical puzzles of exchange rates: excessive volatility, fat...

This paper investigates the out-of-sample forecast performance of a set of competing models of exchange rate determination. We compare standard linear models with models that characterize the relationship between exchange rate and its underlying fundamentals by nonlinear dynamics. Linear models...

This paper investigates the relationship between the euro-dollar exchange rate and its underlying fundamentals. First, we develop a simple theoretical model in which chartists and fundamentalists interact. This model predicts the existence of different regimes, and thus non-linearities in the...

We test whether the relationship between the nominal exchange rate and the news in its underlying fundamentals has non-linear features. In order to do so, we develop a Markov switching model and apply it to a sample of low and high inflation countries. The empirical analysis shows that for the...

In this paper we investigate the effects of central bank interventions (CBI) in a noise trading model with chartists and fundamentalists. We first estimate a model in which chartists extrapolate past returns and fundamentalists forecast a mean reverting dynamics of the exchange rate towards a...