Multiple Regime Models and Exchange Rate Forecasting

DOI

10.2991/jcis.2006.59How to use a DOI?

Keywords

Markov switching, exchange rate, forecast

Abstract

We extend the basic random walk Markov-Switching model in two ways and evaluate the out-of-sample forecasting performance on the Japanese yen during 1995-2004. First, we estimate both a two- and also a three-regime Markov switching models. Second, we add four exogenous variables as suggested in the monetary theory. According to the modified Diebold-Mariano forecast equivalence test, the result shows that our modified models, a three-regime random walk model and a two-regime monetary model, outperform a simple random walk for the yen. However, the interpretation of coefficients in the two-regime monetary model is unclear and the exchange-rate disconnect puzzle still remains a subject for further investigation.

Copyright

© 2006, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - CHUNCHIH CHEN
PY  - 2006/10
DA  - 2006/10
TI  - Multiple Regime Models and Exchange Rate Forecasting
BT  - Proceedings of the 9th Joint International Conference on Information Sciences (JCIS-06)
PB  - Atlantis Press
SP  - 245
EP  - 248
SN  - 1951-6851
UR  - https://doi.org/10.2991/jcis.2006.59
DO  - 10.2991/jcis.2006.59
ID  - CHEN2006/10
ER  -