The purpose of this research is to analyze the forecasting accuracy of full vector autoregressive (FVAR), mixed vector autoregressive (MVAR), and Bayesian vector autoregressive (BVAR) models of the US dollar/yen, US dollar/Canadian dollar, and US dollar/Deutsche mark exchange rates. The VAR specifications are based on a monetary/asset model of exchange rate determination. Out-of-sample results (1983:1-1989:12) indicate that the forecasting performance of restricted VARs (MVARs and BVARs) is substantially better than that of unrestricted VARs (FVARs). Overall, the results show that a monetary/asset model in a VAR representation does have forecasting value for some exchange rates.
- Exchange rates
- Vector autoregression
ASJC Scopus subject areas
- Business and International Management