Modeling and Forecasting Exchange-Rates With a Bayesian Time-Varying Coefficient Model
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0165-1889
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Journal of Economic Dynamics & Control, 1993, 17, 01-feb, 233-261
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CANOVA, Fabio, Modeling and Forecasting Exchange-Rates With a Bayesian Time-Varying Coefficient Model, Journal of Economic Dynamics & Control, 1993, 17, 01-feb, 233-261 - https://hdl.handle.net/1814/16754
Abstract
This paper employs a multivariate Bayesian time-varying coefficients (TVC) approach to model and forecast exchange rate data. It is shown that, if used as a data-generating mechanism, a TVC model induces nonlinearities in the conditional moments and leptokurtosis in the unconditional distribution of the series. It is also shown that leptokurtic behavior disappears under time aggregation. As a forecasting device, a Bayesian TVC model improves over a random walk model. The improvements are robust to several changes in the forecasting environment.