PUBLICACIONES

Can Fluctuations in the Consumption-Wealth Ratio Help to Predict Exchange Rates

J. Internacional: Can Fluctuations in the Consumption-Wealth Ratio Help to Predict Exchange Rates

JORGE SELAIVE C., VICENTE TUESTA.

2005 - Applied Financial Economics - Vol. 16, N° 17, Pp 1251 - 1263

Abstract

It is well documented that macroeconomic fundamentals are little help in predicting changes in nominal exchange rates compared to the predictions made by a simple random walk. Lettau and Ludvigson (2001) find that fluctuations in the common long-term trend in consumption, asset wealth, and labor income (hereby, consumption-wealth ratio) is a strong predictor of the excess returns. In this paper, we study the role of the consumption-wealth ratio in predicting the change in the nominal exchange rate of a large set of countries. We find evidence that fluctuations in the consumption wealth ratio help to predict in-sample all the currencies. In terms of out-of-sample forecasts, our results suggest that the consumption wealth ratio may play a significant role predicting the Canadian dollar at all horizons and at short-intermediate horizons for some currencies.

Keywords

Exchange Rates, Consumption-Wealth Ratio, Predictability

¿Quieres seguir leyendo? [Accede a la publicación completa]

¿Cómo los hombres podemos ser aliados en la prevención de la violencia de género?

El martes 26 de mayo, el Observatorio de Gestión de Personas de la Facultad de Economía y negocios de la Universidad de Chile, junto al centro de Desarrollo Gerencial (Unegocios), rea...

¿Se han agotado los Recursos Naturales de Chile?

El 18 de mayo de 2020 Chile se convirtió en el primer país latinoamericano con sobregiro ecológico, es decir, hemos agotado como país los recursos naturales que tenemos ...

Todos los Derechos © 2014 | Departamento de Administración - Facultad de Economía y Negocios - Universidad de Chile - Diagonal Paraguay 257, torre 26, oficina 1101, piso 11, Santiago, Chile.