TY - JOUR
T1 - Integration, cointegration and the forecast consistency of structural exchange rate models
AU - Cheung, Y.-W.
AU - Chinn, M. D.
PY - 1998/10/1
Y1 - 1998/10/1
N2 - We propose an alternative set of criteria for evaluating forecast rationality: the forecast and the actual series (1) have the same order of integration, (2) are cointegrated and (3) have a cointegrating vector consistent with long-run unitary elasticity of expectations. We denote forecasts that meet these criteria as 'consistent'. Forecasts generated from monetary models generally pass (1). However, using the Johansen procedure, cointegration fails to hold the longer the horizon. Of the cointegrated pairs, (3) is not generally rejected. Using the Horvath-Watson procedure, imposing the unitary coefficient restriction, we find fewer instances of consistency, although a higher proportion of the cases of consistency are found at the longer horizons.
AB - We propose an alternative set of criteria for evaluating forecast rationality: the forecast and the actual series (1) have the same order of integration, (2) are cointegrated and (3) have a cointegrating vector consistent with long-run unitary elasticity of expectations. We denote forecasts that meet these criteria as 'consistent'. Forecasts generated from monetary models generally pass (1). However, using the Johansen procedure, cointegration fails to hold the longer the horizon. Of the cointegrated pairs, (3) is not generally rejected. Using the Horvath-Watson procedure, imposing the unitary coefficient restriction, we find fewer instances of consistency, although a higher proportion of the cases of consistency are found at the longer horizons.
KW - C50
KW - Cointegration
KW - Exchange rate
KW - F31
KW - Forecasts
UR - http://www.scopus.com/inward/record.url?scp=0040678287&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-0040678287&origin=recordpage
U2 - 10.1016/S0261-5606(98)00009-6
DO - 10.1016/S0261-5606(98)00009-6
M3 - 21_Publication in refereed journal
VL - 17
SP - 813
EP - 830
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
SN - 0261-5606
IS - 5
ER -