IDENTIFYING EXCHANGE RATE COMMON FACTORS

• 成果类型: Article
• 署名作者: Greenaway-McGrevy, Ryan; Mark, Nelson C.; Sul, Donggyu; Wu, Jyh-Lin
• 署名单位: University of Auckland; University of Notre Dame; National Bureau of Economic Research; University of Texas System; University of Texas Dallas; National Sun Yat Sen University
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/iere.12334
• 发表日期: 2018
• 页码: 2193-2218
• 关键词: monetary fundamentals; Taylor rules; number; MODEL

摘要

Using recently developed model selection procedures, we determine that exchange rate returns are driven by a two-factor model. We identify them as a dollar factor and a euro factor. Exchange rates are thus driven by global, U.S., and euro-zone stochastic discount factors. The identified factors can also be given a risk-based interpretation. Identification motivates multilateral models for bilateral exchange rates. Out-of-sample forecast accuracy of empirically identified multilateral models dominates the random walk and a bilateral purchasing power parity fundamentals prediction model. Twenty-four-month-ahead forecast accuracy of the multilateral model dominates those of a principal components forecasting model.