TY  - JOUR
AU  - Molodtsova, Tanya
AU  - Papell, David
TI  - Taylor Rule Exchange Rate Forecasting During the Financial Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18330
PY  - 2012
Y2  - August 2012
DO  - 10.3386/w18330
UR  - http://www.nber.org/papers/w18330
L1  - http://www.nber.org/papers/w18330.pdf
N1  - Author contact info:
Tanya Molodtsova
Peacock Hall 3107
Department of Economics
Appalachian State University
Boone, NC 28607
Tel: 281-907-3934
E-Mail: molodtsovat@appstate.edu

David Papell
Department of Economics
University of Houston
Houston, TX  77204
E-Mail: dpapell@uh.edu
M1  - published as Tanya Molodtsova, David H. Papell. "Taylor Rule Exchange Rate Forecasting during the Financial Crisis," in Francesco Giavazzi and Kenneth D. West, organizers, "NBER International Seminar on Macroeconomics 2012" University of Chicago Press (2013)

M3  - presented at "ISOM", June 15-16, 2012
AB  - This paper evaluates out-of-sample exchange rate predictability of Taylor rule models, where the central bank sets the interest rate in response to inflation and either the output or the unemployment gap, for the euro/dollar exchange rate with real-time data before, during, and after the financial crisis of 2008-2009. While all Taylor rule specifications outperform the random walk with forecasts ending between 2007:Q1 and 2008:Q2, only the specification with both estimated coefficients and the unemployment gap consistently outperforms the random walk from 2007:Q1 through 2012:Q1. Several Taylor rule models that are augmented with credit spreads or financial condition indexes outperform the original Taylor rule models. The performance of the Taylor rule models is superior to the interest rate differentials, monetary, and purchasing power parity models.
ER  -