RDP 2025-09: Forecasts of Period-average Exchange Rates: Insights from Real-time Daily Data Appendix E: Robustness – Model-based Forecast Assumptions

Martin McCarthy and Stephen Snudden

December 2025

This appendix presents forecasts that use pre-sample testing for order of integration and the number of autoregressive terms using AIC. These tests were applied to the daily ARIMA specification, and the equivalent lag structure was imposed on Equations (5) to (10).

Table E1: Median Performance of Forecasts for Month-average Bilateral RER – Alternative Model Assumptions
Forecast Model inputs Horizon (months)
1 3 6 12 24 36
RMSFE ratio
Recursive Month-average 1.01 1.01 1.02 1.03 1.06 1.08
Recursive End-of-month 0.89 0.97 0.99 1.02 1.04 1.07
Recursive Bottom-up 0.88 0.96 0.99 1.01 1.01 1.03
Direct Month-average 1.02 1.01 1.01 1.03 1.07 1.24
Direct End-of-month 0.88 0.97 0.99 1.01 1.07 1.24
Direct UMIDAS 0.88 0.96 0.99 1.01 1.07 1.24
Success ratio
Recursive Month-average 0.56 0.52 0.51 0.49 0.54 0.52
Recursive End-of-month 0.68 0.59 0.54 0.52 0.57 0.54
Recursive Bottom-up 0.68 0.57 0.54 0.52 0.59 0.57
Direct Month-average 0.56 0.51 0.51 0.50 0.55 0.54
Direct End-of-month 0.68 0.57 0.53 0.52 0.56 0.54
Direct UMIDAS 0.68 0.57 0.54 0.52 0.56 0.54
Notes: Reports the median result across countries relative to the month-average no-change forecast. RMSFE ratios less than 1 improve upon the month-average no-change. Success ratios greater than 0.5 are improvements upon random chance.
Table E2: Share of Countries with Significant One-month-ahead Exchange Rate Forecasts – Alternative Model Assumptions
Forecast Model inputs versus end-of-month no-change   versus month-average no-change
REER RER NEER NER REER RER NEER NER
Mean square accuracy (%)
Recursive Month-average 9 3 9 3   18 6 25 26
Recursive End-of-month 45 15 26 1   58 73 54 87
Recursive Bottom-up 59 32 43 4   68 82 63 96
Direct Month-average 8 0 8 0   14 4 19 20
Direct End-of-month 44 9 24 0   55 73 46 75
Direct UMIDAS 38 8 24 0   51 76 55 84
Directional accuracy (%)
Recursive Month-average 14 14 11 14   48 62 51 69
Recursive End-of-month 15 10 19 10   98 89 100 100
Recursive Bottom-up 28 20 34 32   99 89 100 100
Direct Month-average 14 13 10 11   41 51 43 58
Direct End-of-month 18 6 16 8   98 87 99 95
Direct UMIDAS 38 14 16 12   100 88 99 95
Notes: Reports the per cent of countries for which the model-based forecast one-month-ahead significantly outperforms the benchmark at a five per cent level of significance.