RDP 2025-09: Forecasts of Period-average Exchange Rates: Insights from Real-time Daily Data Appendix F: Robustness – Countries with Flexible Exchange Rates

Martin McCarthy and Stephen Snudden

December 2025

Table F1: Median Performance of End-of-month No-change Forecasts versus Month-average No-change Forecasts – Countries with Flexible Exchange Rates
  Horizon (months)
1 3 6 12 24 36
RMSFE ratio
Random walk 0.73 0.94 0.97 0.99 0.99 1.00
NER 0.76 0.93 0.97 1.00 1.00 1.00
NEER 0.93 0.98 0.98 0.99 0.99 1.00
RER 0.83 0.95 0.97 1.00 1.00 1.00
REER 0.94 0.97 0.99 1.00 1.00 1.00
Success ratio
Random walk 0.74 0.61 0.58 0.55 0.54 0.53
NER 0.72 0.60 0.59 0.53 0.54 0.50
NEER 0.72 0.60 0.57 0.55 0.55 0.51
RER 0.71 0.60 0.57 0.54 0.52 0.49
REER 0.71 0.59 0.54 0.54 0.54 0.53
Notes: Forecast accuracy of end-of-month no-change forecast versus month-average no-change forecast. Reports the median across countries. Values of the RMSFE ratio less than 1 improve upon the month-average no-change. Values of the success ratio greater than 0.5 are improvements upon random chance. ‘Random walk’ is simulated using 5,000 iterations and 30 years of data.
Table F2: Share of Flexible Exchange Rate Countries with Significant One-month-ahead Exchange Rate Forecasts
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 0 0 0 0   33 0 22 0
Recursive End-of-month 44 25 22 0   56 100 78 100
Recursive Bottom-up 33 38 22 0   67 100 78 100
Direct Month-average 0 0 0 0   33 0 22 0
Direct End-of-month 44 25 22 0   56 100 67 100
Direct UMIDAS 33 13 22 0   78 100 67 100
Directional accuracy (%)
Recursive Month-average 22 38 22 0   22 13 25 0
Recursive End-of-month 22 25 33 14   100 100 100 100
Recursive Bottom-up 11 25 33 0   100 100 100 100
Direct Month-average 22 38 0 0   22 13 25 0
Direct End-of-month 22 25 33 14   100 100 78 100
Direct UMIDAS 25 17 11 33   100 100 100 100
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. Countries with floating exchange rates are defined following Ilzetzki et al (2019).