Politics and Exchange Rate Forecasts

Authors

S. Brock Blomberg, Claremont McKenna CollegeFollow
Gregory Hess, Claremont McKenna CollegeFollow

Document Type

Article

Department

Economics (CMC)

Publication Date

1997

Abstract

Standard exchange rate models perform poorly in out-of-sample forecasting when compared to the random walk model. We posit part of the poor performance of these models may be due to omission of political factors. We test this hypothesis by including political variables that capture party-specific, election-specific and candidate-specific characteristics. Surprisingly, we find our political model outperforms the random walk in out-of-sample forecasting at 1–12 month horizons for the pound/dollar, mark/dollar, pound/mark and the trade-weighted dollar, mark and pound exchange rates.

Rights Information

© 1997 Elsevier B.V.

Terms of Use & License Information

Terms of Use for work posted in Scholarship@Claremont.

DOI

10.1016/S0022-1996(96)01466-3

Recommended Citation

S.Brock Blomberg, Gregory D. Hess, Politics and exchange rate forecasts, Journal of International Economics, Volume 43, Issues 1–2, August 1997, Pages 189-205, ISSN 0022-1996, 10.1016/S0022-1996(96)01466-3. (http://www.sciencedirect.com/science/article/pii/S0022199696014663)