Out-of-sample forecasting performance of single equation monetary exchange rate models in Norwegian currency markets

This study compares the out-of-sample forecasting performance of single-equation monetary exchange rate models against the random walk. We look at spot exchange rates of Norwegian Krone vis-à-vis four major currencies from June 1986 until October 1996. We find that an error correction model outperforms the random walk in out-of-sample forecasting exercises at six and twelve month horizons