Exchange Rates and Monetary Fundamentals: What Do We Learn from Linear and Nonlinear Regressions?

Table 13

Estimates and forecasting with locally-weighted regression (unrestricted monetary model).

Euro/USD	0.975
Japanese yen/USD	0.990
	RMSE: forecasting horizons (months)
	1	3	6	9	12
Euro/USD
LWR	0.015990752	0.016666489	0.013968866	0.01491226	0.01612644
RW	0.016776875	0.028087996	0.044902497	0.05961996	0.07480505
Yen/USD
LWR	0.020281574	0.028250091	0.029957215	0.030992282	0.032026553
RW	0.021142813	0.030467316	0.034595556	0.03579283	0.041196816

Notes: this table reports the forecasting performances between local-weighted regression and random walk (RW) process for the unrestricted form of the monetary model, on the exchange rate Japanese yen/US dollar (yen) and Euro/US dollar (Euro), over the period September 2005 to September 2007.