Belarusian Economic Research and Outreach Center

Open Lecture with Luis Molinas

Luis Molinas

BEROC arranged the open lecture with Luis Molinas (Kansas University) "Exchange Rate Forecasting" on August 27.  In the course of the lecture Luis Molinas presented his research "Exchange Rate Forecastability: Divisia, the User Cost Price, and the Euro".

Luis Molinas
 

About lecture:

Exchange rate forecastability has proven to be a trying endeavor. In 1983 Meese and Rogoff published a paper in which they convincingly argued that no model could outperform a driftless random walk in predicting exchange rates. Since then, many researchers have attempted to find ways to beat the random walk, at least for certain forecasting periods. Others however have written various works supporting the Meese and Rogoff line. Barnett and Kwag (2006) availed themselves of the User Cost Price and Divisia monetary aggregates and included them as variables in the Flexible Price Monetary model, Sticky Price and Hooper Morton models to show that it has greater forecasting power than the random walk when the aforementioned variables replace the interest rate and simple sum monetary aggregates (respectively). Specifically, they worked with the US dollar/British pound exchange rate. This work is an extension of that experiment, applied to the US dollar/Euro exchange rate, but which also includes an Uncovered Interest-rate Parity model. In the paper the author uses Root Mean Square Error, Direction of Change, and Diebold-Mariano statistics to compare the forecasting power of the models. The results indicate that Uncovered Interest-rate Parity with the User Cost Price instead of the interest rate improves on the random walk forecasts in every time horizon and the improvement is statistically significant in longer time horizons.

About speaker:

Luis Molinas is a PhD candidate at the University of Kansas.  He holds a Master of Economics (2017) and a Bachelor of Arts degree (2013), also from the University of Kansas. Luis Molinas is also employee at the Central Bank of Paraguay (BCP) where he has worked on several projects, including reports on the progress of the Maquila industry in Paraguay, the state of government transparency and on a historical price index, among others.