Econometric models are best suited for forecasting long-run exchange rates rather than short-run exchange rates.

Question

Quizplus · Accepted Answer

Econometric models, which rely on historical data and economic theory to forecast future trends, often face challenges in accurately predicting short-term exchange rate movements due to market volatility and unexpected economic events. They are generally considered more effective for long-run forecasts where fundamental economic factors have a more pronounced impact.

Econometric Models Are Best Suited for Forecasting Long-Run Exchange Rates