OCE Research Seminar: Are exchange rates predictable?

The EBRD’s Office of the Chief Economist cordially invites you to a presentation by Michał Rubaszek (Warsaw School of Economics)

Are exchange rates predictable?

Abstract

The long-standing consensus view is that exchange rates are not predictable (exchange rate disconnect puzzle). This view is inconsistent with the evidence that exchange rates gradually revert to their Purchasing Power Parity levels, with half-lives typically ranging from 3 to 5 years. During presentation, Michał Rubaszek will challenge the conventional wisdom by demonstrating how simple PPP-based estimates can be exploited to forecast exchange rates using a simple “napkin” method.

These forecasts not only outperform naïve benchmarks but can also serve to build profitable trading strategies. I will argue that adding complexity, by changing equilibrium exchange rate models or adding richer adjustment dynamics, is counterproductive. I will also explain how the parsimonious model is quickly available in freely accessible FX forecasting online tool (forecast.ipef.org.pl). The presentation is based on a series of my articles published in the last decade in academic journals such as Journal of International Economics, International Journal of Forecasting, Journal of International Money and Finance, International Journal of Central Banking, Open Economies Review and Economic Modelling.

About Michał Rubaszek: https://cepr.org/about/people/michal-rubaszek

The event is taking place at EBRD HQ at 1 PM on 11 September. Please register: newmanl@ebrd.com