Is it important to forecast exchange rates?
Conclusions The importance of forecasting exchange rates extends beyond academia, to policymakers, practitioners and international financial market participants. In our study, we use the most widely used macroeconomic predictors and technical indicators in order to construct reliable exchange rate forecasts against the Random Walk benchmark.
What is the role of technical indicators and macroeconomic predictors in forecasting?
Highlights We highlight the role of both technical indicators and macroeconomic predictors in forecasting exchange rates. We show that both types of predictors provide valuable information about future currency movements. We employ principal components and combination forecasting techniques.
Do economists base their exchange rate forecasts on economic models?
As distressing as it is for economists to admit, many professional exchange rate fore- casters do not base their forecasts on any model of monetary policy or other fundamen- tal economic variables, even simple ones.
Do forecasters use monetary models?
In practice, forecasters do not all use monetary models, such as the one developed in Chapter 27. Many use other approaches, including technical analysis. Even within the theory presented in Chapter 27, a large fraction of exchange rate changes should be unpredictable.
Technical Analysis in Foreign Exchange - The Workhorse Gains