From the new york times bestselling author of this time is different, a fascinating and important book. International finance and macroeconomics program, asset pricing program. After stiglitz criticized the imf in his book, globalization and its discontents, rogoff replied in an open letter. Richard meese is a faculty member at the berkeley school of business. Books by barbara rogoff author of the cultural nature of. In a brilliant and lucid new book, the curse of cash, the harvard economist kenneth rogoff gives a fascinating and thorough account of the argument against. An alternative approach to model estimation and forecast evaluation kelly burns curtin university, australia this study revisits the meese rogoff puzzle by estimating the traditional monetary models of exchange rate determination in statespace form and. We compare the outofsample forecasting accuracy of various timeseries and fundamentalsbased models of aggregate stock prices. For the former professional chess player and imf economist, the death threats following his latest book were especially jarring. Meese was also an economist at the federal reserve board at the time this paper was written. Citeseerx document details isaac councill, lee giles, pradeep teregowda.
Several explanations have been put forward for the meese rogoff puzzle that exchange rate models cannot outperform the random walk in outofsample forecasting. Reinhart and rogoffs superb book is a mustread for anyone looking to understand. Rogoff was the charles and marie robertson professor of international affairs at princeton university. Online shopping from a great selection at books store.
Their result that these models selection from handbook of exchange rates book. This paper provides empirical evidence suggesting that fundamentals matter for stock price fluctuations once temporal instability underpinning stock pricerelations is accounted for. Carmen reinhart and kenneth rogoff, leading economists whose. Demystifying the meeserogoff puzzle will appeal to academics with an interest in exchange rate economics and international monetary economics. Politicians, commentators, and activists widely cited. The outofsample failure of empirical exchange rate models. 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. Kenneth rogoff wrote the book on getting rid of paper money quartz. About this book structural exchange rate modeling has proven extremely difficult during the recent post1973 float. The meese rogoff puzzle a selective survey of subsequent studies basic methodology, data and results alternative measures of forecasting accuracy stochastic movements in the underlying parameters model misspecification the effect of nonlinearities simultaneous equation bias sampling errors modelling expectations concluding remarks. By using exactly the same exchange rates, time periods and estimation methods as those of meese and rogoff, we find that their results cannot be overturned even if. During 20012003 rogoff was chief economist at the internatonal monetary fund. Meese was also an economist at the federal reserve board at. Rogoff and reinharts book suggests that such contractions are characterized above all by severe, widespread debt, which leads to long periods of economic stagnation and uncertainty.
Thus, from a methodological standpoint, our paper supports the view that outofsample fit is an important criterion to consider when evaluating empirical exchange rate models. We find that a random walk model performs as well as any estimated model at one to twelve month horizons for the dollarpound, dollarmark, dollaryen and. In 2002, rogoff was in the spotlight because of a dispute with joseph stiglitz, former chief economist of the world bank and 2001 nobel prize winner. After stiglitz criticized the imf in his book, globalization and its discontents. The disappointment climaxed with the papers of meese and rogoff 1983a, 1983b, who showed that a naive random walk model distinctly dominated received theoretical models in terms of predictive performance for the major dollar. Meese and rogoff 1988 reached the conclusion that, like nominal exchange rates, real exchange rates are disconnected from economic fundamentals, whereas two studies from the mid1990s argued that the random walk can be beaten for large datasets lothian and taylor 1996, jorion and sweeney 1996. Since meese and rogoff 1983a,b, 1988, it has been well known that exchange rates are very difficult to predict using economic models. Lawhons, gdfp school of economics, finance and marketing college of business rmit university january 2014. Journal of international economics 14 12, 324, 1983. Kenneth rogoff is an economist at the international finance division of the board of governors of the federal reserve system in washington, d. This proposition is regarded as a puzzle because it does not make much sense for profitmaximising firms to pay for professional forecasts when the better forecasts generated. Nov 14, 20 since meese and rogoff 1983a,b, 1988, it has been well known that exchange rates are very difficult to predict using economic models. To update listings or check citations waiting for approval, richard a. The optimal degree of commitment to an intermediate monetary target.
Demystifying the meese rogoff puzzle will appeal to academics with an interest in exchange rate economics and international monetary economics. A reconsideration of the meeserogoff puzzle a thesis submitted in fulfilment of the requirements for the degree of doctor of philosophy kelly burns b. The authors acknowledge with gratitude the support of the national science foundation, the alfred p. 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. Subsequently, whether traditional economical models can ever outperform the random walk in forecasting outofsample exchange rates has received. The outofsample failure of empirical exchange rate.
Buy this time is different eight centuries of financial folly book. Part of the work on this paper was completed while rogoff was on leave as a national fellow of the hoover institution. About this book for the past 30 years international monetary economists have believed that exchange rate models cannot outperform the random walk in outofsample forecasting as a result of the 1983 paper written by richard meese and kenneth rogoff. The authors present compelling evidence, supported by their own measure. In their examination meese and rogoff utilized various models like the flexiblecost monetary model, the clingy cost money related and the dornbuschfrankel model to gauge a year skyline for the dollarpound, dollarmark, dollaryen and exchange weighted midpoints. Can structural change explain the meeserogoff puzzle. Their combined citations are counted only for the first article. The meeserogoff puzzle refers to the proposition that exchange rate models cannot outperform the random walk in outofsample forecasting of exchange rates.
International finance and macroeconomics program, asset pricing program this paper compares the true, exante forecasting performance of a microbased model against both a standard macro model and a random walk. We stick as close as possible to the original meese rogoff sample and methodology. Specifically, this study extends the outof sample forecasting methodology of meese and rogoff j int econ 14. Jrfm free fulltext the predictability of the exchange. Ayhan kose cornell university dyson school of applied economics and management, harvard university department of economics, columbia business school finance and economics and development prospects group at the world bank. However, the recent literature has identified new predictors and models that claim to forecast exchange rates gourinchas and rey 2007, mark 1995, and molodtsova and papell 2009, among others. A reappraisal of the meeserogoff puzzle request pdf. 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 outofsample forecasting. Carmen reinhart and kenneth rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis. His newest book the curse of cash, shows why phasing out most except for. Rogoff highlighted optimal commitment and reputation as institutional mechanisms to address the problem of. To make corrections to the bibliographic information of a particular item, find the technical contact on the abstract page of that item. Rogoff also examined central bank policymaking and produced theory which joined with that of other scholars provided the intellectual framework for redesign of the worlds central banks.
Barbara rogoff s most popular book is the cultural nature of human development. Far less frequently, something more serious grips an economy. Subsequently, whether traditional economical models can ever outperform the random walk in forecasting outofsample exchange rates has. Books, images, historic newspapers, maps, archives and more. The meeserogoff puzzle a selective survey of subsequent studies basic methodology, data and results alternative measures of forecasting accuracy stochastic movements in the underlying parameters model misspecification the effect of nonlinearities simultaneous equation bias sampling errors modelling expectations concluding remarks.
He is also a regular contributor to project syndicate. It will also be a useful resource for central banks and financial institutions. The meese and rogoff 1983a,b framework is used to investigate the forecasting power of order flow and it is shown that the order flow specifications reduce rmses, relative to a random walk, for virtually all exchange rates and sampling frequencies. There, details are also given on how to add or correct references and citations. This study compares the outofsample forecasting accuracy of various structural and time series exchange rate models. Carmen reinhart and kenneth rogoff, leading economists whose work has been. These two anomalies are sometimes referred to as the purchasing power parity puzzles. Interview with kenneth rogoff federal reserve bank of. The item empirical exchange rate models of the seventies. About this book introduction for the past 30 years international monetary economists have believed that exchange rate models cannot outperform the random walk in outofsample forecasting as a result of the 1983 paper written by richard meese and kenneth rogoff.
Meese and rogoff 1988 reached the conclusion that, like nominal exchange rates, real exchange rates are disconnected from economic fundamentals, whereas two studies from the mid1990s argued that the random walk can be beaten for large datasets. This cited by count includes citations to the following articles in scholar. This time the random walk loses vox, cepr policy portal. The meese and rogoff 1983 results continue to stimulate significant research in the area and countless attempts have been made to overturn the findings using a variety of data, sample periods, methodologies and model specifications.
This paper compares the true, exante forecasting performance of a microbased model against both a standard macro model and a random walk. Reinhart and rogoffs superb book is a mustread for anyone looking to. Rogoff, exchange rate models of the seventies 21 our paper contrast with those of previous studies based on insample fit. The paper 27 in 2014 by moosa and burns confirmed the meese rogoff puzzle, that exchange rate models cannot outperform random walk models in outofsample forecasting. This paper applies the meese rogoff 1983a methodology to the stock market.
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 real exchangerate puzzles is a common term for two muchdiscussed anomalies of real exchange rates. Empirical modeling of exchange rate dynamics francis x. Barbara rogoff has 12 books on goodreads with 702 ratings. We find that a random walk model performs as well as any estimated model at one to twelve month horizons for the dollarpound, dollarmark, dollaryen and tradeweighted dollar exchange rates. Financial folly, economists carmen reinhart and kenneth rogoff show in this groundbreaking book, knows no boundaries and has no expiration date. Sloan foundation, and the berkeley institute for business and. Exchange rate determination and intermarket order flow.
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