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

Table 9

Out of sample forecasts: ECM monetary models.

Models	RMSE: forecasting horizon (months)
	1	3	6	9	12
Euro/dollar
ECM	0.019048978	0.019075327	0.020145789	0.021732	0.023211
RW	0.022554564	0.02265186	0.028065	0.024445	0.021827
Yen/dollar
ECM	0.0164281746	0.0170305761	0.0181297815	0.0188239441	0.0188787073
RW	0.029062706	0.031616901	0.031721507	0.029177812	0.031630935

Notes: this table reports the forecasting performances between ECM models and random walk (RW) process for the exchange rate Japanese yen/US dollar (yen) and Euro/US dollar (Euro), over the period September 2005 to September 2007.