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Can panel data really improve the predictability of the monetary exchange rate model?

Westerlund, Joakim LU and Basher, Syed A. (2007) In Journal of Forecasting 26(5). p.365-383
Abstract
A common explanation for the inability of the monetary model to beat the random walk in forecasting future exchange rates is that conventional time series tests may have low power, and that panel data should generate more powerful tests. This paper provides an extensive evaluation of this power argument to the use of panel data in the forecasting context. In particular, by using simulations it is shown that although pooling of the individual prediction tests can lead to substantial power gains, pooling only the parameters of the forecasting equation, as has been suggested in the previous literature, does not seem to generate more powerful tests. The simulation results are illustrated through an empirical application. Copyright (C) 2007... (More)
A common explanation for the inability of the monetary model to beat the random walk in forecasting future exchange rates is that conventional time series tests may have low power, and that panel data should generate more powerful tests. This paper provides an extensive evaluation of this power argument to the use of panel data in the forecasting context. In particular, by using simulations it is shown that although pooling of the individual prediction tests can lead to substantial power gains, pooling only the parameters of the forecasting equation, as has been suggested in the previous literature, does not seem to generate more powerful tests. The simulation results are illustrated through an empirical application. Copyright (C) 2007 John Wiley & Sons, Ltd. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
panel data, monetary exchange rate model, forecasting, bootstrap, pooling
in
Journal of Forecasting
volume
26
issue
5
pages
365 - 383
publisher
Wiley Online Library
external identifiers
  • wos:000249291600004
  • scopus:34548404598
ISSN
1099-131X
DOI
10.1002/for.1034
language
English
LU publication?
yes
id
0087798a-3850-44ba-b4a6-be7109b84930 (old id 657210)
date added to LUP
2007-12-19 16:14:36
date last changed
2017-01-01 05:09:20
@article{0087798a-3850-44ba-b4a6-be7109b84930,
  abstract     = {A common explanation for the inability of the monetary model to beat the random walk in forecasting future exchange rates is that conventional time series tests may have low power, and that panel data should generate more powerful tests. This paper provides an extensive evaluation of this power argument to the use of panel data in the forecasting context. In particular, by using simulations it is shown that although pooling of the individual prediction tests can lead to substantial power gains, pooling only the parameters of the forecasting equation, as has been suggested in the previous literature, does not seem to generate more powerful tests. The simulation results are illustrated through an empirical application. Copyright (C) 2007 John Wiley & Sons, Ltd.},
  author       = {Westerlund, Joakim and Basher, Syed A.},
  issn         = {1099-131X},
  keyword      = {panel data,monetary exchange rate model,forecasting,bootstrap,pooling},
  language     = {eng},
  number       = {5},
  pages        = {365--383},
  publisher    = {Wiley Online Library},
  series       = {Journal of Forecasting},
  title        = {Can panel data really improve the predictability of the monetary exchange rate model?},
  url          = {http://dx.doi.org/10.1002/for.1034},
  volume       = {26},
  year         = {2007},
}