Evaluation of exchange rate forecasts for the krona’s nominal effective exchange rate

Abstract

In this paper we evaluate the out of sample forecasting performance of a large number of models belonging to a popular class of exchange rate models. Forecasts of the Swedish nominal effective exchange rate for the period 1980-2000 are performed using both single equation estimation and VAR approaches. The forecast horizons used were from 1 to 12 quarters. None of the models evaluated could convincingly outperform a random walk alternative.