Mean reversion in real exchange rates: evidence and implications for forecasting
Year: 1996
Type: article
Abstract: The stationarity of real exchange rates over the recent flexible exchange rate period is an issue that has long bedeviled researchers in international finance. Using a constrained multivariate framework, this paper provides the strongest evidence yet that real exchange rates were mean-reverting over the 1973-93 period. We also investigate shifts in long-run real exchange rates, which may be important for the purpose of forecasting. Out-of-sample forecasting shows that the random walk model is outperformed by a mean-stationary model, especially at long horizons. In addition, there are substantial forecasting benefits from using a multivariate approach.
Authors: Philippe Jorion, Richard J. Sweeney
Institutions: University of California, Irvine, Georgetown University
Language: English
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,130
OpenAlex ID: W2109027680