Exchange rates and macroeconomic fundamentals: Evidence of instabilities from time‐varying factor loadings
研究使用时变因子载荷方法，发现汇率与宏观经济基本面的关系随时间变化，且该模型在危机期间能显著提升汇率预测能力，尤其对汇率方向变化的预测更准。
Summary We examine the relationship between exchange rates and macroeconomic fundamentals using a two‐step maximum likelihood estimator through which we compute time‐varying factor loadings. Factors are obtained as principal components, extracted from vintage macro‐datasets that combine FRED‐MD and OECD databases. Using 14 currencies over 1990–2021, we show that the loadings on the factors vary considerably over time and increase the percentage of explained variation in exchange rates by an order of magnitude. Time‐varying loadings improve the overall predictive ability of the model, especially during crises, and lead to better forecasts of sign changes in exchange rates.