The Performance of Exchange Rate Forecasts

Philip W. Lowe*, Robert G. Trevor

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

Since the floating of the Australian dollar the forecasting of exchange rate movements has become more difficult and received much more attention. As a result, some participants in the foreign exchange market have, on a number of occasions, come under criticism for their inability to predict exchange rate movements. This article seeks to evaluate these criticisms through an examination of exchange rate forecasts made by market participants (as published in the Australian Financial Review from March 1985 to December 1985). The accuracy of the $A/US$ forecasts is compared with that of forecasts generated from a number of simple forecasting rules as well as forecasts of the US$/Yen exchange rate. In general, the simple forecasting rules provide superior forecasts to those provided by the individual market participants. However, under some criteria, the mean of the individual participants' forecasts may be preferred to these simple forecasting rules. Further, the comparison of the US$/Yen forecasts with the $A/US$ forecasts shows the former to be generally more accurate. 1987 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research

Original languageEnglish
Pages (from-to)31-44
Number of pages14
JournalAustralian Economic Review
Volume20
Issue number4
DOIs
Publication statusPublished - 1987
Externally publishedYes

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