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177
Modelling asymmetric exchange rate dependence
 International Economic Review
"... We test for asymmetry in a model of the dependence between the Deutsche mark and the yen, in the sense that a different degree of correlation is exhibited during joint appreciations against the U.S. dollar versus during joint depreciations. We consider an extension of the theory of copulas to allow ..."
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Cited by 140 (5 self)
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We test for asymmetry in a model of the dependence between the Deutsche mark and the yen, in the sense that a different degree of correlation is exhibited during joint appreciations against the U.S. dollar versus during joint depreciations. We consider an extension of the theory of copulas to allow for conditioning variables, and employ it to construct flexible models of the conditional dependence structure of these exchange rates. We find evidence that the mark–dollar and yen–dollar exchange rates are more correlated when they are depreciating against the dollar than when they are appreciating. 1.
Towards a solution to the puzzles in exchange rate economics: where do we stand?, Canadian
 Journal of Economics
, 2005
"... This paper provides a selective overview of puzzles in exchange rate economics. We begin with the forward bias puzzle: high interest rate currencies appreciate when one might guess that investors would demand higher interest rates on currencies expected to fall in value. We then analyze the purchasi ..."
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Cited by 60 (1 self)
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This paper provides a selective overview of puzzles in exchange rate economics. We begin with the forward bias puzzle: high interest rate currencies appreciate when one might guess that investors would demand higher interest rates on currencies expected to fall in value. We then analyze the purchasing power parity puzzle: the real exchange rate displays no (strong) reversion to a stable longrun equilibrium level. Finally, we cover the exchange rate disconnect puzzle: the lack of a link between the nominal exchange rate and economic fundamentals. For each puzzle, we critically review the literature and speculate on potential solutions. JEL classification: F31.
Probabilistic forecasts, calibration and sharpness
 Journal of the Royal Statistical Society Series B
, 2007
"... Summary. Probabilistic forecasts of continuous variables take the form of predictive densities or predictive cumulative distribution functions. We propose a diagnostic approach to the evaluation of predictive performance that is based on the paradigm of maximizing the sharpness of the predictive dis ..."
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Cited by 53 (16 self)
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Summary. Probabilistic forecasts of continuous variables take the form of predictive densities or predictive cumulative distribution functions. We propose a diagnostic approach to the evaluation of predictive performance that is based on the paradigm of maximizing the sharpness of the predictive distributions subject to calibration. Calibration refers to the statistical consistency between the distributional forecasts and the observations and is a joint property of the predictions and the events that materialize. Sharpness refers to the concentration of the predictive distributions and is a property of the forecasts only. A simple theoretical framework allows us to distinguish between probabilistic calibration, exceedance calibration and marginal calibration. We propose and study tools for checking calibration and sharpness, among them the probability integral transform histogram, marginal calibration plots, the sharpness diagram and proper scoring rules. The diagnostic approach is illustrated by an assessment and ranking of probabilistic forecasts of wind speed at the Stateline wind energy centre in the US Pacific Northwest. In combination with crossvalidation or in the time series context, our proposal provides very general, nonparametric alternatives to the use of information criteria for model diagnostics and model selection.
Pooling of forecasts
 Econometrics Journal
, 2004
"... We consider forecasting using a combination, when no model coincides with a nonconstant data generation process (DGP). Practical experience suggests that combining forecasts adds value, and can even dominate the best individual device. We show why this can occur when forecasting models are differe ..."
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Cited by 53 (8 self)
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We consider forecasting using a combination, when no model coincides with a nonconstant data generation process (DGP). Practical experience suggests that combining forecasts adds value, and can even dominate the best individual device. We show why this can occur when forecasting models are differentially misspecified, and is likely to occur when the DGP is subject to location shifts. Moreover, averaging may then dominate over estimated weights in the combination. Finally, it cannot be proved that only nonencompassed devices should be retained in the combination. Empirical and Monte Carlo illustrations confirm the analysis. Journal of Economic Literature classification: C32.
Evaluating, comparing and combining density forecasts using the KLIC with an application to the Bank of England and NIESR “fan” charts of inflation
, 2005
"... ..."
Predictive density evaluation
, 2005
"... This chapter discusses estimation, specification testing, and model selection of predictive density models. In particular, predictive density estimation is briefly discussed, and a variety of different specification and model evaluation tests due to various ..."
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Cited by 34 (3 self)
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This chapter discusses estimation, specification testing, and model selection of predictive density models. In particular, predictive density estimation is briefly discussed, and a variety of different specification and model evaluation tests due to various
Optimal combination of density forecasts
 NATIONAL INSTITUTE OF ECONOMIC AND SOCIAL RESEARCH DISCUSSION PAPER NO
, 2005
"... This paper brings together two important but hitherto largely unrelated areas of the forecasting literature, density forecasting and forecast combination. It proposes a simple datadriven approach to direct combination of density forecasts using optimal weights. These optimal weights are those weigh ..."
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Cited by 32 (10 self)
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This paper brings together two important but hitherto largely unrelated areas of the forecasting literature, density forecasting and forecast combination. It proposes a simple datadriven approach to direct combination of density forecasts using optimal weights. These optimal weights are those weights that minimize the ‘distance’, as measured by the KullbackLeibler information criterion, between the forecasted and true but unknown density. We explain how this minimization both can and should be achieved. Comparisons with the optimal combination of point forecasts are made. An application to simple timeseries density forecasts and two widely used published density forecasts for U.K. inflation, namely the Bank of England and NIESR “fan” charts, illustrates that combination can but need not always help.
Evaluating the Bank of England density forecasts of inflation
 Economic Journal
, 2004
"... We consider evaluating the UK Monetary Policy Committee’s inflation density forecasts using probability integral transform goodnessoffit tests and measures related to a decision/cost based approach. In implementing the decisionbased approach a number of difficulties arise in the absence of full i ..."
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Cited by 31 (0 self)
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We consider evaluating the UK Monetary Policy Committee’s inflation density forecasts using probability integral transform goodnessoffit tests and measures related to a decision/cost based approach. In implementing the decisionbased approach a number of difficulties arise in the absence of full information on payoffs, and when the actual and forecast inflation probabilities may depend on the actions taken in setting interest rates. tion. Journal of Economic Literature classification: C53.
Evaluating the Survey of Professional Forecasters probability distributions of expected inflation based on derived probability forecasts
, 2005
"... Regressionbased tests of forecast probabilities of particular events of interest are constructed. The event forecast probabilities are derived from the SPF density forecasts of expected inflation and output growth. Tests of the event probabilities supplement statisticallybased assessments of the f ..."
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Cited by 26 (6 self)
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Regressionbased tests of forecast probabilities of particular events of interest are constructed. The event forecast probabilities are derived from the SPF density forecasts of expected inflation and output growth. Tests of the event probabilities supplement statisticallybased assessments of the forecast densities using the probability integral transform approach. The regressionbased tests assess whether the forecast probabilities of particular events are equal to the true probabilities, and whether any systematic divergences between the two are related to variables in the agents ’ information set at the time the forecasts were made. Forecast encompassing tests are also used to assess the quality of the event probability forecasts.