The Meese-Rogoff Puzzle: What Puzzle?
The Messe-Rogoff puzzle has been a debatable topic since 1983 when Richard Meese and Kenneth Rogoff demonstrated that no exchange rate model can outperform the random walk in out-of-sample forecasting. This finding been taken to imply the weakness of international economics and finance and raised th...
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| Other Authors: | |
| Format: | Book Chapter |
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Nova Science Publishers
2015
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| Online Access: | http://hdl.handle.net/20.500.11937/10817 |
| _version_ | 1848747637421899776 |
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| author | Moosa, I. Burns, Kelly |
| author2 | Carly M Hutson |
| author_facet | Carly M Hutson Moosa, I. Burns, Kelly |
| author_sort | Moosa, I. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | The Messe-Rogoff puzzle has been a debatable topic since 1983 when Richard Meese and Kenneth Rogoff demonstrated that no exchange rate model can outperform the random walk in out-of-sample forecasting. This finding been taken to imply the weakness of international economics and finance and raised the question as to why firms spend money on exchange rate forecasts and use them as an input in the financial decision making process when these forecasts are that bad. In this study we resolve the puzzle by examining a number of propositions, including the following: (i) we should expect nothing but that exchange rate models cannot outperform the random walk in out-of-sample forecasting if forecasting accuracy is measured by metrics that depend on the magnitude of the forecasting error only; (ii) the use of dynamic models to outperform the random walk is inappropriate because it is tantamount to beating a random walk with a random walk; and (iii) it is possible to outperform the random walk in terms of other metrics such as direction accuracy and profitability. |
| first_indexed | 2025-11-14T06:52:19Z |
| format | Book Chapter |
| id | curtin-20.500.11937-10817 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T06:52:19Z |
| publishDate | 2015 |
| publisher | Nova Science Publishers |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-108172017-01-30T11:21:07Z The Meese-Rogoff Puzzle: What Puzzle? Moosa, I. Burns, Kelly Carly M Hutson Random Walk Direction Accuracy Forecasting Exchange Rate Models The Messe-Rogoff puzzle has been a debatable topic since 1983 when Richard Meese and Kenneth Rogoff demonstrated that no exchange rate model can outperform the random walk in out-of-sample forecasting. This finding been taken to imply the weakness of international economics and finance and raised the question as to why firms spend money on exchange rate forecasts and use them as an input in the financial decision making process when these forecasts are that bad. In this study we resolve the puzzle by examining a number of propositions, including the following: (i) we should expect nothing but that exchange rate models cannot outperform the random walk in out-of-sample forecasting if forecasting accuracy is measured by metrics that depend on the magnitude of the forecasting error only; (ii) the use of dynamic models to outperform the random walk is inappropriate because it is tantamount to beating a random walk with a random walk; and (iii) it is possible to outperform the random walk in terms of other metrics such as direction accuracy and profitability. 2015 Book Chapter http://hdl.handle.net/20.500.11937/10817 Nova Science Publishers restricted |
| spellingShingle | Random Walk Direction Accuracy Forecasting Exchange Rate Models Moosa, I. Burns, Kelly The Meese-Rogoff Puzzle: What Puzzle? |
| title | The Meese-Rogoff Puzzle: What Puzzle? |
| title_full | The Meese-Rogoff Puzzle: What Puzzle? |
| title_fullStr | The Meese-Rogoff Puzzle: What Puzzle? |
| title_full_unstemmed | The Meese-Rogoff Puzzle: What Puzzle? |
| title_short | The Meese-Rogoff Puzzle: What Puzzle? |
| title_sort | meese-rogoff puzzle: what puzzle? |
| topic | Random Walk Direction Accuracy Forecasting Exchange Rate Models |
| url | http://hdl.handle.net/20.500.11937/10817 |