Exchange Rates and Fundamentals: Evidence from Long-Horizon Regression Tests

• Autores: Shiu-Sheng Chen, Yu-Hsi Chou
• Localización: Oxford bulletin of economics and statistics, ISSN 0305-9049, Vol. 72, Nº. 1, 2010, págs. 63-88
• Idioma: inglés
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• Resumen

  • This article considers the long-run relationship between nominal exchange rates and fundamentals from a different perspective. We apply a long-horizon regression approach proposed by Fisher and Seater (1993) and find evidence supporting the explanatory power of exchange rate models. In particular, the Taylor-rule model outperforms other conventional models. We then use the inverse power function (IPF) proposed by Andrews (1989) to investigate the power of the Fisher–Seater test. The IPF analysis provides additional evidence supporting exchange rate models.