Predictable Movements in Yen/DM Exchange Rates
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Summary:
This paper examines the relevance of PPP, the adjustment channel of real exchange rate and the predictability of the movement in nominal exchange rate by studying the behavior of yen/DM exchange rate, using cointegration method. Results support PPP and find that the real exchange rate is mean-reverting. The change in the nominal exchange rate exhibits significant auto-regressive property. These findings imply that movements in the nominal yen/DM exchange rate is actually predictable. The error-correction model and a simple first order autoregressive model both outperform the random walk model in out-of-sample forecasting.
Series:
Working Paper No. 2000/143
Subject:
Exchange rates Export price indexes Foreign exchange Prices Purchasing power parity Real exchange rates Wholesale price indexes
English
Publication Date:
August 1, 2000
ISBN/ISSN:
9781451856330/1018-5941
Stock No:
WPIEA1432000
Pages:
36
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