Demystifying the Meese-Rogoff Puzzle

1. Front Matter

   Pages i-xiv

   PDF

2. The Meese-Rogoff Puzzle

   • Imad A. Moosa, Kelly Burns

   Pages 1-13

3. A Selective Survey of Subsequent Studies

   • Imad A. Moosa, Kelly Burns

   Pages 14-31

4. Basic Methodology, Data and Results

   • Imad A. Moosa, Kelly Burns

   Pages 32-43

5. Alternative Measures of Forecasting Accuracy

   • Imad A. Moosa, Kelly Burns

   Pages 44-62

6. Stochastic Movements in the Underlying Parameters

   • Imad A. Moosa, Kelly Burns

   Pages 63-72

7. Model Misspecification

   • Imad A. Moosa, Kelly Burns

   Pages 73-88

8. The Effect of Non-linearities

   • Imad A. Moosa, Kelly Burns

   Pages 89-97

9. Simultaneous Equation Bias

   • Imad A. Moosa, Kelly Burns

   Pages 98-104

10. Sampling Errors

    • Imad A. Moosa, Kelly Burns

    Pages 105-115

11. Modelling Expectations

    • Imad A. Moosa, Kelly Burns

    Pages 116-125

12. Concluding Remarks

    • Imad A. Moosa, Kelly Burns

    Pages 126-136

13. Back Matter

    Pages 137-150

    PDF

For the past 30 years international monetary economists have believed that exchange rate models cannot outperform the random walk in out-of-sample forecasting as a result of the 1983 paper written by Richard Meese and Kenneth Rogoff. Marking the culmination of their extensive research into the Meese-Rogoff puzzle, Moosa and Burns challenge the orthodoxy by demonstrating that the naïve random walk model can be outperformed by exchange rate models when forecasting accuracy is measured by metrics that do not rely exclusively on the magnitude of forecasting error. The authors present compelling evidence, supported by their own measure: the 'adjusted root mean square error', to finally solve the Meese-Rogoff puzzle and provide a new alternative. Demystifying the Meese-Rogoff Puzzle will appeal to academics with an interest in exchange rate economics and international monetary economics. It will also be a useful resource for central banks and financial institutions.

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• Monash University, Australia

  Imad A. Moosa

• Curtin University, Australia

  Kelly Burns

Imad Moosa is Professor of Finance at the Royal Melbourne Institute of Technology (RMIT), Australia. He has also held previous appointments at Monash and La Trobe Universities, Australia, and the University of Sheffield, UK. Prior to working in academia he held professional positions at the International Monetary Fund and in investment banking. He has published 16 books and over 200 papers.

Kelly Burns is a Research Fellow at Curtin Graduate School of Business, Australia. She has held previous appointments at the Australian Bureau of Statistics, the Department of Premier and Cabinet, the Department of Justice, and the Colonial First State. In 2002, she graduated from La Trobe University, Australia, and was the recipient of the Dean's Medal for Economics.

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