Polish paper says PPP model can predict short-term exchange rates
A working paper, published by the National Bank of Poland today (October 9), find real exchange rates can be forecast more accurately using a half-life purchasing power parity (PPP) model compared with using a standard ‘random walk' approach.
The authors, Michele Ca‘ Zorzi and Michał Rubaszek, said the PPP approach, which suggests the relative price of identical domestic and foreign baskets of goods is constant when expressed in a common currency, can be used for forecasting both short-term and
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