Charles Engel

Department of Economics University of Wisconsin 1180 Observatory Drive  Madison, WI 53706-1393

Phone: (608) 262-3697 FAX: (608) 262-2033 Contact me at cengel@ssc.wisc.edu

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Wisconsin Economics Department National Bureau of Economic Research International Economics Workshop	Working Papers Published Papers Vita Data

PhD course in International Macro and Finance (Econ 872- Spring 2023) (These are notes, comments, questions, answers, some lecture slides and can be used as a self-taught course.) This version 15-June-2023

Here are a couple of figures from the new working paper with Steve Pak Yeung Wu: "Exchange Rate Models are Better Than You Think, and Why They Didn't Work in the Old Days"

In the first figure, we have estimated a single-equation model for monthly changes in the exchange rate with traditional monetary policy-related variables (real interest rates and expected inflation), variables related to risk (corporate bond spread, convenience yield, changes in net external debt) and the lagged real exchange rate. Here we have cumulated the fitted values of the regression and then adjusted the average to equal the sample average. [Note these are not forecasting equations - they relate current exchange rates to current fundamentals.]

Of course, it well known that these models did not fit in the past. Here are plots of the F-statistic for joint significance of the fundamentals and R² for 20-year rolling samples beginning in March 1973 (and these are fit without the convenience yield, as that data was unavailable back to the start of the sample.)