On the Sources of Uncertainty in Exchange Rate Predictability: Supplementary Appendix

Abstract

This document contains supplementary material to the paper "On the Sources of Uncertainty in Exchange Rate Predictability". In part A we examine the ability of our models to generate economic value in a stylized asset portfolio management setting. We describe the criteria for such evaluation and the corresponding results. Part B presents figures on variance decomposition and other results associated with the BMA including time-varying coefficients at the 3-months forecasting horizon. Part C contains figures on the sources of prediction uncertainty for four currencies whose figures were omitted from the main text to conserve space (AUD, NOK, SEK, and CHF). Part D shows the recursive relative Root Mean Squared Forecast Error (RMSFE) for the Bayesian model averaging excluding and including time-varying coefficients. In part E we use predictive likelihoods to measure relative forecasting performance of the Bayesian model selection (BMS) excluding time-varying coefficients relative to BMS including time-varying coefficients. Part F reports results for additional robustness checks. We present the details regarding the estimation of the dynamic linear model that we consider in part G. Part H describes the data sources and the last part elaborates on the procedure to construct bootstrapped critical values for the DMW test.

Keywords: Exchange Rate Forecasting, Instabilities, Time-Varying Parameter Models, Bayesian Model Selection, Forecast Combination

JEL Classification: C53, C55, E44, F37, G11