This paper analyses the effects of sterilised, intraday foreign exchange market operations (non-discretionary and discretionary) on foreign exchange returns and volatility in four inflation targeting economies in Latin America. The distribution of exchange rates during intervention and non-intervention days are first compared, and then event study regressions are used to estimate the impact of intervention (and macro surprises) on exchange rate returns and exchange rate volatility as well as on foreign exchange market turnover (in Colombia). In general, the results suggest that the impact of both non-discretionary and discretionary operations is at times significant but transitory. However, an analysis of Chile's experience suggests that the announcement effects of even non-discretionary programmes may be significant and persistent.
In this paper we show that the exchange rates of some commodity exporter countries have the ability to predict the price of spot and future contracts of aluminum. This is shown with both insample and out-of-sample analyses. The theoretical underpinning of these results relies on the present-value model for exchange rate determination and on the tight connection between commodity prices and the currencies of commodity exporter countries. We show results using traditional statistical metrics of forecast accuracy: Mean Squared Prediction Error and Mean Directional Accuracy. We also show that the first principal component of our sample of exchange rates is a useful way to summarize the predictive information contained in our set of commodity currencies.
In this paper we show that survey-based-expectations about the future evolution of the Chilean exchange rate have the ability to predict the returns of the six primary non-ferrous metals: aluminum, copper, lead, nickel, tin and zinc. Predictability is also found for returns of the London Metal Exchange Index. Previous studies have shown that the Chilean exchange rate has the ability to predict copper returns, a world commodity index and base metal prices. Nevertheless, our results indicate that expectations about the Chilean peso have stronger predictive ability relative to the Chilean currency. This is shown both in-sample and out-of-sample. By focusing on expectations of a commodity currency, and not on the currency itself, our paper provides indirect but new and strong evidence of the ability that commodity currencies have to forecast commodity prices. Our results are also consistent with the present-value-model for exchange rate determination.
We explore the ability of several univariate models to predict inflation in a number of countries and at several forecasting horizons. We place special attention on forecasts coming from a family of ten seasonal models that we call the Driftless Extended Seasonal ARIMA (DESARIMA) family. Using out-of-sample Root Mean Squared Prediction Errors (RMSPE) we compare the forecasting accuracy of the DESARIMA models with that of traditional univariate time-series benchmarks available in the literature. Our results show that DESARIMA-based forecasts display lower RMSPE at short horizons for every single country, except one. We obtain mixed results at longer horizons. Roughly speaking, in half of the countries, DESARIMA-based forecasts outperform the benchmarks at long horizons. Remarkably, the forecasting accuracy of our DESARIMA models is surprisingly high in stable inflation countries, for which the RMSPE is barely higher than 100 basis points when the prediction is made 24-and even 36-months ahead. Resumen En este trabajo se explora la capacidad de varios modelos univariados para predecir la inflación de un conjunto de países a varios horizontes predictivos. Se pone especial atención en predicciones provenientes de una familia de diez modelos estacionales que es denominada Driftless Extended Seasonal ARIMA (DESARIMA). Mediante el cálculo de la raíz cuadrada del error cuadrático medio (RECM) fuera de muestra, se compara la capacidad predictiva de los modelos DESARIMA con la de modelos referenciales de series de tiempo tradicionalmente utilizados en la literatura. Los resultados indican que las predicciones basadas en modelos DESARIMA muestran una menor RECM para horizontes cortos en todos los países considerados, excepto en uno. Se obtienen resultados mixtos para horizontes mayores. Aproximadamente en la mitad de los países las predicciones basadas en modelos DESARIMA superan a los modelos referenciales en horizontes largos. Se destaca que la precisión predictiva de los modelos DESARIMA es sorprendentemente alta en países con inflación estable, para los cuales la RECM es algo mayor que 100 puntos base para predicciones realizadas a 24 y hasta 36 meses adelante. * We thank the comments of seminar participants at the Central Bank of Chile. Any errors or omissions are responsibility of the authors. The views and ideas expressed in this paper do not necessarily represent those of the Central Bank of Chile or its authorities.
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