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Out-of-Sample Performance of the Macroeconomic Balance Approach to the Real Exchange Rate in Sub-Saharan Africa

Out-of-Sample Performance of the Macroeconomic Balance Approach to the Real Exchange Rate in... This paper tests the performance of the macroeconomic balance (MB) approach (or fundamental equilibrium exchange rate approach) in predicting future movements of real exchange rates (RERs) and current accounts. The analysis is conducted for countries in Sub-Saharan Africa (SSA). Econometric evidence shows that a random walk beats current account and RER misalignments from the MB approach in out-of-sample forecasting accuracy. However, the MB approach helps to predict the direction of change of these variables. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of African Economies Oxford University Press

Out-of-Sample Performance of the Macroeconomic Balance Approach to the Real Exchange Rate in Sub-Saharan Africa

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References (13)

Publisher
Oxford University Press
Copyright
© The author 2014. Published by Oxford University Press on behalf of the Centre for the Study of African Economies. All rights reserved. For permissions, please email: journals.permissions@oup.com
Subject
Articles
ISSN
0963-8024
eISSN
1464-3723
DOI
10.1093/jae/eju002
Publisher site
See Article on Publisher Site

Abstract

This paper tests the performance of the macroeconomic balance (MB) approach (or fundamental equilibrium exchange rate approach) in predicting future movements of real exchange rates (RERs) and current accounts. The analysis is conducted for countries in Sub-Saharan Africa (SSA). Econometric evidence shows that a random walk beats current account and RER misalignments from the MB approach in out-of-sample forecasting accuracy. However, the MB approach helps to predict the direction of change of these variables.

Journal

Journal of African Economies – Oxford University Press

Published: Jun 23, 2014

Keywords: JEL classification F37

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