Which of the Following Issues Are Difficulties for the Fundamental $\alpha$

question 94

Multiple Choice

Which of the following issues are difficulties for the fundamental approach to exchange rate forecasting?

• A)One has to forecast a set of independent variables to forecast the exchange rates.Forecasting the former will certainly be subject to errors and may not be necessarily easier than forecasting the latter.
• B)The parameter values, that is the \(\alpha\)'s and \(\beta\)'s, that are estimated using historical data may change over time because of changes in government policies and/or the underlying structure of the economy.Either difficulty can diminish the accuracy of forecasts even if the model is correct.
• C)The model itself can be wrong.
• D)All of the above

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