Previous assessments of nominal exchange rate determination have focused upon a narrow set of models typically of the 1970's vintage, including monetary and portfolio balance models. In this paper we re-assess the in-sample fit and out-of-sample prediction of a wider set of models that have been...

Risk neutral densities (RND) can be used to forecast the price of the underlying basis for the option, or it may be used to price other derivates based on the same sequence. The method adopted in this paper to calculate the RND is to firts estimate daily the diffusion process of the underlying...

The concept of purchasing power parity is used as a measure of the equilibrium real exchange rate to evaluate whether seven East Asian currencies were overvalued: the Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, Taiwanese dollar and the Thai baht. The...

We estimate the process underlying the pricing of American options by using higher-order lattices combined with a multigrid method. This paper also tests whether the risk-neutral densities given from American options provide a good forecasting tool. We use a nonparametric test of the densities...

At the beginning of 1999 the euro was launched as a common currency in 11 European countries. This paper addresses empirically the medium to long-term forces driving the real euro-dollar exchange rate. Constructing a synthetic euro-dollar exchange rate over a period from 1975 to 1998 and...

This paper reexamines the issue of long-run PPP using multiple panel tests in the framework of confirmatory analysis. Application of six panel tests under competing null hypotheses to the real exchange rates of 21 industrial countries yields seemingly contradictory evidence on the parity during...

This paper reexamines the issue of long-run PPP using multiple panel tests in the framework of confirmatory analysis. Application of six panel tests under competing null hypotheses to the real exchange rates of 21 industrial countries yields seemingly contradictory evidence on the parity during...

Previous assessments of nominal exchange rate determination, following Meese and Rogoff (1983) have focused upon a narrow set of models. Cheung et al. (2005) augmented the usual suspects with productivity based models, and “behavioral equilibrium exchange rate” models, and assessed...

The Taylor rule has become the dominant model for academic evaluation of out-of-sample exchange rate predictability. Two versions of the Taylor rule model are the Taylor rule fundamentals model, where the variables that enter the Taylor rule are used to forecast exchange rate changes, and the...