Can Macroeconomists Get Rich Forecasting Exchange Rates?

Mauro Costantini, Jesus Crespo Cuaresma, Jaroslava Hlouskova

Publication: Working/Discussion PaperWU Working Paper

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Abstract

We provide a systematic comparison of the out-of-sample forecasts based on multivariate macroeconomic models and forecast combinations for the euro against the US dollar, the British pound, the Swiss franc and the Japanese yen. We use profit maximization measures based on directional accuracy and trading strategies in addition to standard loss minimization measures. When comparing predictive
accuracy and profit measures, data snooping bias free tests are used. The results indicate that forecast combinations help to improve over benchmark trading strategies for the exchange rate against the US dollar and the British pound, although the excess return per unit of deviation is limited. For the euro against the Swiss franc or the Japanese yen, no evidence of generalized improvement in profit measures over the benchmark is found. (authors' abstract)
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
DOIs
Publication statusPublished - 1 Jun 2014

Publication series

SeriesDepartment of Economics Working Paper Series
Number176

WU Working Paper Series

  • Department of Economics Working Paper Series

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