Estudo BC 2024 - Taxa de Cambio

ISSN 1518-3548
588Janeiro 2024
Predictability of Exchange Rate Densities for Emerging

Economies in the Short Run
Jaqueline Terra Moura Marins
ISSN 1518-3548
CGC 00.038.166/0001-05
Working Paper Series Brasília no. 588 Janeiro 2024 p. 3-53

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Non-Technical Summary
FX rate predictability is non-trivial, but it is of great importance for economic agents and policy mak-
ers, as the exchange rate is one of the main prices in an economy. According to Meese and Rogoff’s puzzle,
standard economic theory fails to explain foreign exchange rate behavior using key economic fundamentals:
such models perform no better than a naive random walk forecasting model.
More recently, some papers follow a strand of literature focused on the use of financial data for FX
forecasting. Such studies are also concentrated not only on point estimates, but on the entire price density.
Financial instruments, such as currency options, can be used for this type of density forecasting. According
to Gaglianone and Marins (2017), the Option-Implied model presented promising forecasting results for
the short run in the case of the Brazilian currency, as opposed to traditional economic models. The present
paper is an extension of Gaglianone and Marins (2017) study for other emerging economies, focused on
short-run forecasts.
With this in mind, the goal is to evaluate if the promising short-run forecasting capacity (one and three
months ahead) of the Option-Implied model for Brazil is also verified for other 13 emerging countries. The
investigated currencies are from India, Mexico, Russia, Chile, Singapore, South Africa, Turkey, Colombia,
Malaysia, Indonesia, Israel, Philippines and Thailand.
Therefore, we try to contribute extending the FX forecasting to many other emerging countries, am-
plifying the usual forecasting approach for the whole price density and introducing financial information
extracted from option prices on the forecasting scheme.
According to the implemented density forecast evaluation tests, the forward-looking Option-Implied
model presents better results than the historical-looking economic models and Random Walk model, for all
investigated emerging countries in one- and three-month horizons. In terms of forecast error reduction, for
example, the option model statistically beats economic models and Random Walk model in almost all cases,
presenting the highest error reduction for the majority of countries.
3
Sumário Não Técnico
Previsibilidade da taxa de câmbio não é um assunto trivial, mas é de grande importância para agentes
econômicos e tomadores de decisão, uma vez que o câmbio é um dos principais preços de uma economia.
De acordo com o puzzle de Meese e Rogoff, a teoria econômica tradicional não consegue explicar o com-
portamento da taxa de câmbio por meio de fundamentos econômicos: tais modelos não apresentam melhor
desempenho do que um simples modelo de previsão de passeio aleatório.
Mais recentemente, alguns artigos seguem uma linha de literatura focada em dados financeiros para
previsão de câmbio. Tais estudos também se concentram não apenas em previsões pontuais, mas na pre-
visão de toda a densidade de preços. Instrumentos financeiros, como opções cambiais, podem ser usados
nesse tipo de previsão de densidade. Segundo Gaglianone e Marins (2017), o modelo baseado em opções
implı́citas apresentou resultados promissores de previsão para o curto prazo no caso da moeda brasileira, em
oposição aos modelos econômicos tradicionais. O presente artigo é uma extensão do estudo de Gaglianone
e Marins (2017) para outras economias emergentes, com foco em previsões de curto prazo.
Tendo isso em mente, o objetivo é avaliar se a promissora capacidade de previsão de curto prazo
(um e três meses à frente) do modelo de opções implı́citas para o Brasil também se verifica para outros 13
paı́ses emergentes. As moedas investigadas são da Índia, México, Rússia, Chile, Singapura, África do Sul,
Turquia, Colômbia, Malásia, Indonésia, Israel, Filipinas e Tailândia.
Tentamos assim contribuir estendendo a previsão cambial a outros paı́ses emergentes, ampliando a
abordagem usual de previsão para toda a densidade de preços e introduzindo informações financeiras ex-
traı́das dos preços de opções cambiais no processo de previsão.
De acordo com os testes de avaliação de previsão de densidade implementados, o modelo forward-
looking baseado em opções apresenta melhores resultados do que os modelos econômicos baseados em
dados históricos e o modelo Random Walk, para todos os paı́ses emergentes investigados nos horizontes
de um e três meses. Em termos de redução do erro de previsão, por exemplo, o modelo de opções supera
estatisticamente os modelos econômicos e o modelo Random Walk em quase todos os casos, apresentando
as maiores reduções de erro para a maioria dos paı́ses.
4
Predictability of Exchange Rate Densities for Emerging
Economies in the Short Run
Jaqueline Terra Moura Marins∗
February 5, 2024
Abstract
FX rate predictability is non-trivial, but is of great importance for economic agents and pol-
icy makers, as it is one of the main prices in an economy. Aware of the failure of standard
economic theory to explain foreign exchange rate behavior using key economic variables
since Meese and Rogoff (1983 a, b), in this paper, besides economic models, we also use
financial data to forecast point and density estimates, as well as some value-at-risk mea-
sures. Making use of promising results found for Brazilian currency in Gaglianone and
Marins (2017) with the Option-Implied model for the short-run forecasting, we verify if
these results are extended for other 13 emerging currencies. According to density fore-
cast evaluation tests, the Option-Implied model one more time presents better results than
economic models and the Randon Walk model for all investigated emerging countries in
short-run horizons. In terms of RMSE reduction for example, the Option model statisti-
cally beats economic models and Random Walk model in almost all cases, presenting the
highest error reductions for the majority of countries, varying between 21% and 32% for
one-month-ahead horizon and between 15% and 37% for three-month-ahead horizon.
Keywords: Exchange Rate, Density Forecasts, Currency Options.

JEL Classification: F31, G17, G13.
The Working Papers should not be reported as representing the views of the Banco Cen-
tral do Brasil. The views expressed in the papers are those of the author(s) and do not
necessarily reflect those of the Banco Central do Brasil.
∗
Central Bank of Brazil e-mail: jaqueline.terra@bcb.gov.br
5
1 Introduction
Exchange rate is one of the main prices in an economy and its forecasting becomes of great importance for
economic agents and policy makers. FX rate predictability is non-trivial. As Gaglianone and Marins (2017)
point out, the failure of standard economic theory to explain foreign exchange rate behavior using key
economic fundamentals and theories (such as money supply, trade balance, national income, purchasing
power parity hypothesis and uncovered interest rate parity) has been shown in international economics
literature since the classic papers by Meese and Rogoff (1983a, b), who concluded such models perform no
better than a naive random walk (RW) forecasting model. Their findings have become known as Meese and
Rogoff puzzle.
However, after many years, Rogoff (2008) comments foreign exchange rate models based on funda-
mentals have had some success in forecasting in the short run. According to this author, successful results
of empirical models for forecasting the exchange rate are restricted to very long and very short forecast hori-
zons. Although Rogoff (2008) argues there is already substantial evidence that monetary models combined
with the Taylor Rule models present successful cases for very high frequencies, this frequency level (very
short horizon) is not the case analyzed in my paper. Rogoff (2008) treats one month not as a short term, but
as an intermediate term. We consider horizons of one to three months as short term.
As Baku (2019) says, empirical studies analyzing the evolution of the exchange rates in emerging
market economies have been relatively limited. Furthermore, those few studies concentrate the analysis
on point forecasts, such as the first and the second moments of FX density. Also, the majority of them
uses economic fundamentals, such as monetary aggregates and Taylor-rule variates. The author makes an
interesting review about those studies, even warning the findings are mixed.
On the other hand, forecasting densities from financial instruments such as option prices is a growing
field, notably since Bliss and Panigirtzoglou (2004) paper. Blake and Rule (2015) handbook describes the
use of options prices to estimate risk neutral forecast densities for financial market prices as an important
routine at the Bank of England for the past few years. Hanke et al (2018), Della Corte et al (2016) and
Christoffersen and Mazzotta (2005) are some examples of the useful information extracted from option
prices in their estimation of foreign exchange rates densities. Hanke et al (2018) generate exchange-rate
forecasts around Brexit and Trump’s election based on a model that combines risk-neutral event probabil-
ities implied from betting quotes with risk-neutral exchange-rate densities extracted from currency option
prices, obtaining accurate forecasts. Christoffersen and Mazzotta (2005) find the OTC implied volatili-
ties provide largely unbiased and fairly accurate forecasts of one-month- and three-month-ahead realized
volatility. Furthermore, they find the one-month option implied density forecasts are well calibrated for the
center of the distribution, but find evidence of misspecification in the tail density forecasts. Della Corte et al
(2016) discover a new currency strategy that provides clues as to the underlying drivers of the exchange rate
movements, called the currency volatility risk premium for changes in spot exchange rates, defined as the
difference between expected realized volatility and model-free implied volatility extracted from FX option
prices.
Crisostomo and Couso (2018) compare risk-neutral densities extracted from option prices with many
historical schemes of financial density forecasts, for the stock market in Spain. They conclude risk-neutral
densities in general outperform historical-based estimates. They point that the previous literature on finan-
cial forecasts has been mainly devoted to just the second moment of the distribution (volatility predictions)
and much fewer studies consider entire density forecasts. Also, they note generalizations to other markets
or time-periods are typically limited in literature, due mainly to option prices data availability.
6
Gaglianone and Marins (2017) also go beyond point forecasting and follow a strand of literature
focused on out-of-sample density forecasting. The present paper is an extension of Gaglianone and Marins
(2017) study for other emerging economies, focused on short-run forecasts. More specifically, while the
previous paper compares forecasting performance of many FX density models for Brazil, the present paper
investigates the predictability of the same set of models for other 13 emerging countries. According to
Gaglianone and Marins (2017), the Option-Implied model presented the most promising forecasting results
for the short-run.
Therefore, in this paper, the goal is to evaluate if the promising short-run forecasting capacity (one
and three months ahead) of the Option-Implied model for Brazil is also verified for other 13 emerging
countries. The investigated currencies are from India, Mexico, Russia, Chile, Singapore, South Africa,
Turkey, Colombia, Malaysia, Indonesia, Israel, Philippines and Thailand, all of them considered in US dollar
terms. Forecast evaluation tests are conducted through different perspectives: point forecast evaluation tests,
focused on the median of the estimated density, and density forecast evaluation tests, based on local parts
of the density (that is, evaluating value-at-risk measures at selected quantile levels) as well as on the entire
density.
Therefore, we try to contribute extending the FX forecasting to many other emerging countries, am-
plifying the forecasting for the whole density and introducing financial information extracted from option
prices on the forecasting scheme.
According to the implemented density forecast evaluation tests, the forward-looking Option-Implied
model, one more time, presents better results than the historical-looking economic models and Randon
Walk model for all investigated emerging economies in one- and three-month horizons. In terms of RMSE
reduction for example, the Option model statistically beats economic models and Random Walk model in
almost all cases, presenting the highest error reductions for the majority of countries, varying between 21%
and 32% for one-month-ahead horizon and between 15% and 37% for three-month-ahead horizon.
Section 2 presents the methodological approach to generate density curves according to the models.
It also presents the implemented density forecast evaluation tests: point, local and global based. Section 3
refers to the empirical exercise results applied to the emerging economies. Section 4 concludes.
2 Methodology
In this paper, we consider 14 emerging currencies followed from May 2008 to January 2022. We construct
point and density forecasts for the short run, represented by one- and three-month horizons. We investigate
11 models to construct the FX forecasts: Random Walk, as the benchmark model, Option-Implied and
9 other models based on standard economic theory. We estimate the forecast models by using recursive
estimation, with increasing sample size as months go by. We use Matlab and Eviews to generate models’
densities and to obtain density evaluation tests. The emerging markets currencies, all quoted in terms of
US Dollar, are Brazilian Real (BRL), Indian Rupee (INR), Mexican Peso (MXN), Russian Ruble (RUB),
Chilean Peso (CLP), Singapore Dollar (SGD), South African Rand (ZAR), Turkish Lira (TRY), Colombian
Peso (COP), Malaysian Ringgit (MYR), Indonesian Rupiah (IDR), Israel Shekel (ILS), Philippine Peso
(PHP) and Thai Baht (THB).
7
2.1 Random Walk Model
Random Walk model without drift is the benchmark model. It is coupled with a Gaussian distribution for
generating density forecast, in which its location is the out-of-sample RMSE of past forecast errors of the
distribution and its variance is given by the sample variance of these forecast errors. Recursive estimation
is used. The estimation sample begins in January 2000 and ends in May 2008. The (pseudo) forecast
sample begins in June 2008 and ends in January 2022. The exchange rates closing values are obtained from
Bloomberg data-base.
2.2 Option-Implied Model

For this model, we select currency options at the beginning of each month set to expire in one and three
months. This way, we obtain monthly data forecasts for beginning-of-month currency prices. As currency
options data are required to calculate densities extracted from these options, their availability determined
the sample period for the Option Model. In this case, the sample begins in January 2007 for most of the
countries and in May 2008 for some of them. Foreign exchange option data were extracted from Bloomberg,
in the form of volatility surfaces of currency options. These surfaces are estimated by market participants
based on a daily poll conducted by Bloomberg. We use call and put options data with five different delta
values: 10, 15, 25, 35 and 50%.1
Option-Implied Model is a forward-looking approach based on financial data and on extraction of in-
formation from option prices. The main idea is options are contracts giving the right (but not the obligation)
to buy or sell an asset at a given point in the future at a price set at present time (the strike price). Options
to buy (call options) are only valuable if there is a chance that, when the option comes to be exercised,
the underlying asset will be worth more than the strike price. This way, if one considers options to buy
a particular asset at a particular point in the future but at different strike prices, the prices at which such
contracts are traded now provides some information about the market’s view of the chances that the price of
the underlying asset will be above the various strike prices. Therefore, options tell us something about the
probability the market attaches to an asset being within a range of possible prices at some future date.
Option-Implied Model consists of two major steps: (i) obtaining risk-neutral densities (RND), and (ii)
transforming these densities into real world densities (RWD). The RND for an asset price gives the set of
probabilities that investors would attach to the future asset prices in a world in which they are risk neutral.
However, if the investors are risk averse (as they usually are), risk premium will drive a wedge between the
probabilities inferred from options (RND) and the true probabilities that they attach to alternative values of
the underlying asset price (RWD).
The first step follows the work of Shimko (1993), who proposed a nonparametric technique for ex-
tracting RND from option prices based on the construction of an implied volatility curve for the option via
the interpolation of its strike prices (smile volatility curve). Shimkoś method was developed for stock option
prices and we adapted it for exchange rates by using the Black model for pricing future price options (Black,
1976). 2 Breeden and Litzenberger (1978) derived an explicit relationship between the risk-neutral density
of an asset and the price of the option on that asset as
1 Actually, Bloomberg’s original data consist of options strategies in the form of risk reversals, butterflies and at-the-money
volatilities. Ornelas (2016) gives an appropriate description of these option data provided by Bloomberg.
2 If the underlying asset of the future contract is the exchange rate, the Black model becomes equivalent to the Garman-
Kohlagen model for pricing exchange rate options.
8
Q ∂ 2 ct (T, K)
ft,T (x) = e(rT ) , (1)
∂ K2 K=xT
Q
where ft,T (x) is the risk-neutral probability distribution of the country currency in dollar terms, Ct is the
(call) option price of an underlying asset st , K is the respective exercise (strike) price of the referred option,
rt is the risk-free interest rate, T denotes the number of days to maturity, and f (st ) is the risk-neutral
probability density (RND) of the underlying asset st . Shimko obtained the densities from this formula by
interpolating the calculated implicit volatilities for the same maturity and different exercise prices. To do
this, one must generate an entire continuum of values for the relationship between the option price and its
exercise price, given that, in practice, only a few points of this curve are known. 3
RWD can be estimated in essentially two ways. The first one seeks to estimate the utility-function
transformations of the RNDs that determine investors’ preferences for risk, like in Bliss and Panigirtzoglou
(2004). The second way also seeks to transform RND into RWD, but it does not require the function per-
forming the calibration to be a utility function intending to represent investors’ risk preferences, like in
Fackler and King (1990), Liu et al. (2007) and Vincent-Humphreys and Noss (2012). We follow this second
approach. It is more empirical in that it seeks the function that best fits the RNDs obtained from a given set
of observed data, without requiring this function to fit an underlying model of economic agents’ behavior.
According to these authors, probability densities that reflect rational economic agents’ real-world expecta-
tions should, on average, be unbiased predictors of the possible outcomes. If risk-neutral PDFs are biased,
the difference between the RND and the estimated RWD of prices as later observed provides an indication
of the degree and the nature of risk aversion of the representative agent. To the extent that this difference
displays a systematic pattern over time, it may be exploited to adjust the RNDs over as yet unobserved
future prices to estimate economic agents’ real-world expectations. The authors use the highly flexible, yet
parsimonious, beta distribution function to deliver that calibration of RNDs into RWDs. Although the beta
distribution depends on only two parameters, it nests many simple forms of transformation such as a mean
shift, mean-preserving changes in variance and changes involving mean, variance and skewness.
The calibration approach that transforms RNDs into RWDs can be represented by the following equa-
tions:
P Q
Ft,T (x) = C(Ft,T (x)), (2)
P (x) is the option implied risk-neutral cumulative probability function of x at time t for options
where Ft,T
Q
expiring at T , Ft,T (x) is the associated real world cumulative function and C() is the calibration function.
Q Q
P
ft,T (x) = C0 (Ft,T (x)) ft,T (x), (3)
Q P (x) is
where ft,T (x) is the option implied risk-neutral density of x at time t for options expiring at T and ft,T
the associated real world density.
If C is a beta distribution, equation (4) becomes:
P B Q Q
ft,T (x) = ft,T (Ft,T (x)| j, k) ft,T (x), (4)
3 In this sense, Shimko proposed a quadratic interpolation of the implied volatilities associated with each existing exercise
price. The continuum of values for the option price is obtained from this new curve of implied volatilities, allowing the calculation
of second derivatives, and thus the respective densities. In this paper, risk-neutral densities for future exchange rates were
generated only for one and three months ahead (h = 1 and 3), due to the low liquidity of exchange rate based options (and the
lack of available data) for longer maturities.
9
B (x/ j, k) is the probability density function of the beta distribution with parameters j and k.
where ft,T
Estimating RWDs from the set of historical RNDs and price outturns therefore amounts to estimating
the parameters j and k of the beta distribution.
2.3 Economic Models

We implement nine conventional economics driven models, following Molodtsova and Papell(2009). They
include Taylor-rule based models, purchasing power parity, monetary model and conventional interest rate
model.
A general setup of each economic model takes the form of:
0
st+h − st = Xm,t βm,h + εm,t+h (5)
0 is a vector of economic
in which st+h − st is the h-period change in the (log) exchange rate, Xm,t
variables used in model m, and εm,t+h is the error term.
Table 1 presents further details of each model.
Table 1: Economic models
Model Covariate vector

(1) Taylor rule model [1; πt − πt∗ ; ytgap − ytgap∗ ; qt ]
(2) Taylor rule (PPP) [1; πt − πt∗ ; ytgap − ytgap∗ ]
(3) Taylor rule (PPP, smoothing) [1; πt − πt∗ ; ytgap − ytgap∗ ; it−1 − it−1
∗ ]
∗ gap gap∗ ∗ ]
(4) Taylor rule (smoothing) [1; πt − πt ; yt − yt ; qt ; it−1 − it−1
(5) Absolute PPP model [1 ; qt ]
(6) Relative PPP model [1 ; ∆qt ]
(7) Monetary model [1; st − ((mt − mt∗ ); ytgap − ytgap∗ ]
(8) Monetary model (weaker) [1; ∆st − ((∆mt − ∆mt∗ ); ∆yt − ∆yt∗ ]
(9) Forward premium model ∗ ]
[1; it−1 − it−1
Notes: The real exchange rate is defined as qt ≡ st + pt∗ − pt , where pt (pt∗ ) is the (log) consumer price index in the home (foreign) country.
Economic models are based on the work of Molodtsova and Papell (2009), where in the home (foreign) country, πt (πt∗ ) is the CPI inflation,
ytgap (ytgap∗ ) is the output gap, it (it∗ ) is the short-term interest rate, mt (mt∗ ) is the money supply and yt (yt∗ ) is the output.
2.4 Density forecast evaluation tests

As Crisostomo and Couso (2018) remember, the validation of density forecasts is typically performed
through the so-called probability integral transforms (PIT), which assess the statistical consistency between
the ex-ante densities and the ex-post realizations, like the Berkowitz test. However, several papers have
shown that PIT-based analysis do not consider the forecasting accuracy of the competing methods or the
magnitude of its errors, advocating for targeted scoring rules to supplement the PIT assessments. Therefore,
we also employ tests based on scoring rules, which evaluate the accuracy of each method in predicting the
ex-post realizations.
Tests for evaluating the performance of the density forecast models are conducted here in three cat-
egories: point forecasts, global density forecasts and local density forecasts. In all tests, the considered
significance level is 5%.
We implement the Diebold-Mariano-West (1995, 1996) test of equal accuracy to perform point fore-
cast evaluation, focused on the forecast performance of the central part of the estimated densities. Positive
test statistics indicate the alternative model (Option-Implied) has lower RMSE than the benchmark model.
10
Global density analysis considers the forecast accuracy of the entire density. To do so, we investigate
coverage rates, Berkowitz test (2001), model ranking from log density predictive score (LDPS) and the
Amisano-Giacomini test (2007).
According to Clark (2011), a necessary but not sufficient condition for a good density model is to
generate a conditional density with an adequate coverage rate, i.e., to check if the frequency of observations
that have fallen in the considered forecast interval (nominal coverage) departures significantly from it. We
consider the 70% forecast interval band (true coverage), which leads to a forecast interval based on the
conditional quantiles of each model forecasted density ranging from quantile level 0.15 to 0.85.
In sequence, we test the equality between the nominal coverage and the true coverage, where the null
hypothesis is that there is no difference between them. In this case, it is desirable not to rejected the null.
A disadvantage of coverage rate tests is that they ignore time dependence and cluster behavior of a
given percentile of the estimated density, i.e., they are unconditional tests. Therefore, it is interesting to
analyze density forecast models based on a broader measure of density calibration: the probability integral
transform (PIT).
PIT of the realization of a variable with respect to its density forecast is given by:
Z Yt+h
zt+h = fbt+h,t (u) du ≡ Fbt+h,t (Yt+h ) , (6)
− inf
where Fbt+h,t (Yt+h ) is the estimated probability of Yt+h not exceeding the realized value yt+h , and
fbt+h,t (u) is our estimated density forecast of a given model m. The main idea of density forecast evaluation
is that, assuming correct specification of the model, the PIT yields independent and uniformly distributed
random variables for h = 1. This suggests it is possible to evaluate whether the conditional forecast densities
match the true conditional densities by testing whether {zt }tT = 1 is i.i.d. from U(0,1). For h > 1, it is not
i.i.d. (Clements, 2005).
Berkowitz test (2001) is PIT-based and presents better power than the ones based on the uniformity
of PIT’s. This test departs from local density evaluation tests and uses the entire distribution of possible
outcomes, consequently extracting more information from the available data. Therefore, instead of paying
attention only to rare violations, Berkowitz transform all the outcomes in a standard normal random variable.
Dealing with transformed standard normal variables, this test becomes more convenient, flexible and
possess good finite sample properties.
More specifically, Berkowitz tests e zt+1 , defined as:
zt+1 ≡ Φ−1 (zt+1 ) ,

e (7)
To test the null hypothesis that e

zt+1 ĩ.i.d. N(0,1), Berkowitz proposes LR tests of
zet − µ = ρ(e
zt−1 − µ) + εt , (8)
because this way we test jointly independence, µ = 0 and ρ = 1. The test statistic, under the null,
converges to a χ 2 with 3 degrees of freedom,for h=1 and with 2 degrees for h=3.
The log density predictive score (LDPS) is another useful measure of the calibration of density fore-
casts. This approach ranks the investigated models based on their log scores: the higher the score is, the
better a model is. The LDPS of a model m and forecast horizon h is:
1 n bm
LDPSm,h = ∗ ∑ ln ft+h,t (yt+h ) (9)
n t=1
11
m
where fbt+h,t is the density of the variable of interest Yt+h estimated from model m and based on the
information set available at period t. The observed value of variable Yt+h is yt+h .
Amisano-Giacomini (2007) test compares the log score distance between two competing models.
It requires estimates with rolling samples of data, instead of recursive estimation. The null hypothesis
assumes the average difference in LDPS between Random Walk model and alternative models is equal to
zero. Differences in log scores are regressed on a constant and, if the constant is negative and significant, it
means the average difference between Random Walk and alternative model is negative and significant too.
A negative test statistic indicates a higher LDPS for the alternative model compared to the Random Walk
model.
Local density analysis checks the model’s performance in distinct parts of the forecasted distribution,
i.e. value-at-risk measures. We consider quantiles τ = 0.1; 0.2; ...; 0.9.
When a model is rejected for a given h and τ, it suggests the model needs to be improved, because of
wrong coverage rates, cluster behavior or even a poor temporal dynamics.
Like in the global case, local forecast coverage rate (LFCR) can be evaluated. LFCR is defined as the
proportion of violations:
\ m,h,r = 1 Σt=1
LFCR n
Ht+h , (10)
n
where:

1, if y > Q bm,r (yt+h /ℑt )
t+h
Ht+h =
0, otherwise.
\ m,h,r = (1 − τ) is checked via the Kupiec (1995) test. It is a non

The statistical significance of LFCR
parametric test, also known as unconditional coverage test. The null hypothesis:
\ m,h,r = E(Ht+h ) = 1 − τ.
LFCR (11)
The probability of observing N violations over a sample size of n is driven by a Binomial distribution.
This way, the null can be tested through a standard likelihood (LR) test:
 N−n

\ N
((LFCRm,h,τ ) ) ∗ (1 − LFCRm,h,τ )
\
LRuc = 2ln  , (12)
((1 − τ)N ) ∗ τ n−N
which follows, under the null, a chi-squared distribution with one degree of freedom.
3 Results
Figure 1 presents the behavior of the 14 currencies considered in this study along the sample period. The
main feature in common is the sharp increase experienced by the exchange rates due to the global crisis in
2008 and, more recently, another increase due to the Covid-19 crisis.
One-month-ahead density forecasts provided by all models are summarized in Figures A.1 to A.3 of
the Appendix, through the evolution of the main moments of each forecasted density. The models present
close values for the median moments. All models seem to increase currencies volatility during Global and
Covid crises. This effect was more prominent on Covid crisis. Skewness (positive) are also elevated during
12
Figure 1: Exchange rates in US$ terms - beginning of the month
Notes: This figure shows the evolution of the exchange rates at the beginning of each month for Brazil, Chile, Colombia, India, Indonesia,
Israel, Malaysia, Mexico, Russia, Singapore, South Africa, Thailand, Turkey and Philippines. It is expressed as the value of one dollar in units
of the domestic currency, that is, an increase (reduction) in the values means a depreciation (appreciation) of the domestic currency.
both crises. Statistical moments for three-month-ahead density forecasts are plotted in Figures A.4 to A.6
of the Appendix and present similar behavior.
Now we turn to the pertinent question of the paper: does Option-Implied model beat economic and
random models for short-run forecast horizons? Results of the mentioned density forecast evaluation tests
presented in the Methodology section help to tackle this question.
Tables 2 and 3 present the point forecast tests based on RMSE and on the Diebold-Mariano-West
(1995, 1996) test of equal accuracy, representing the point forecast analysis. According to both tables,
all models reduce RMSE for one- and three-month horizons when compared to Random Walk model4 .
These reductions are statistically significant for all countries. However, Option-Implied model generated
the highest reduction in 6 out of the 14 countries for one-month horizon and in 8 out of 14 countries for
three-month horizon. As expected, as forecast horizon increases, predictive ability decreases: one can note
lower RMSE reductions in all currencies for three-month horizon compared to one-month horizon.
In terms of global density forecast analysis, we begin conducting coverage rate test in order to check
whether the models’ departures from a given nominal coverage rate (e.g. 70%) appear to be statistically
meaningful. Tables 4 and 5 present the forecasted coverage rates (% of actual outcomes inside the 70%
interval band) for each country and their respective p-values for the null hypothesis of correct coverage,
e.g., empirical equal to nominal rate of 70%. Here, it is desirable not to reject the null hypothesis, i.e., it is
expected to obtain high p-values. For one- and three-month forecast horizons and 70% nominal coverage
rate, it can be seen that Option-Implied model produces an adequate coverage rate for all countries in both
horizons, while Random Walk does not.5 Economic models present an intermediate performance between
Option-Implied and Random Walk models in both horizons. As a robustness exercise, we also present
coverage rate tests for 50% and 90% interval bands. We obtain similar results in both cases and for both
horizons.6
4 The only exception is Option-Implied model forecast for South Africa in three-month horizon, but the increased RMSE is
not statistically significant in that case.
5 Actually, there is only one non-rejection of the null for RW model for both horizons (Turkey).
6 Test results for 50% and 90% interval bands are available upon request.
13
Table 2: RMSE and Diebold-Mariano test results - One-month horizon
RMSE decrease
Country Option Econ 1 Econ 2 Econ 3 Econ 4 Econ 5 Econ 6 Econ 7 Econ 8 Econ 9
Brazil -24% -24% -24% -25% -24% -24% -24% -23% -23% -24%
India -25% -24% -24% -23% -23% -24% -24% -24% -22% -24%
Mexico -25% -27% -26% -27% -26% -26% -27% -27% -29% -27%
Russia -27% -25% -25% -25% -25% -25% -26% -25% -24% -25%
Chile -24% -26% -27% -24% -25% -25% -26% -24% -25% -22%
Singapore -27% -28% -29% -26% -26% -28% -27% -28% -29% -28%
South Africa -25% -23% -24% -23% -24% -26% -25% -26% -26% -25%
Turkey -24% -24% -24% -25% -24% -24% -24% -23% -23% -24%
Colombia -24% -24% -24% -25% -25% -25% -24% -24% -25% -24%
Malaysia -28% -27% -27% -27% -26% -27% -27% -26% -27% -27%
Indonesia -26% -27% -27% -26% -25% -28% -24% -28% -28% -27%
Israel -32% -30% -30% -31% -31% -32% -30% -29% -29% -31%
Philippines -29% -27% -27% -24% -22% -28% -26% -27% -27% -26%
Thailand -30% -31% -31% -29% -29% -32% -31% -31% -31% -31%
DMW test statistic
Brazil 4.65 4.21 4.39 5.21 5.03 4.26 4.25 4.46 4.24 4.81
India 4.69 4.26 4.32 4.02 4.05 4.34 4.37 4.38 3.74 4.16
Mexico 5.24 4.65 5.45 5.21 4.15 4.61 5.35 4.88 4.67 5.40
Russia 5.52 5.02 5.07 4.89 4.45 5.04 5.71 5.08 5.26 4.93
Chile 4.57 5.18 5.48 4.18 4.68 5.17 5.44 4.82 5.06 3.74
Singapore 4.97 5.04 5.16 4.19 4.25 4.90 5.08 4.86 5.35 4.79
South Africa 4.66 3.72 5.03 4.84 4.23 4.84 5.15 5.02 5.30 5.54
Turkey 4.41 7.25 6.47 6.54 7.74 5.75 4.93 6.30 4.26 4.13
Colombia 4.45 4.69 4.87 5.07 4.88 4.78 4.80 4.82 4.90 4.95
Malaysia 5.44 5.28 5.38 5.39 5.14 5.28 5.40 5.19 5.37 5.36
Indonesia 3.91 5.84 5.91 6.28 5.36 6.15 6.74 6.14 6.30 6.36
Israel 6.22 7.55 6.53 6.50 7.50 7.23 5.93 5.13 5.77 5.87
Philippines 5.64 5.87 5.49 4.29 4.64 6.44 5.03 5.48 5.71 4.67
Thailand 6.26 6.32 6.24 5.49 5.70 6.69 6.47 6.15 6.41 6.22
Notes: This table presents RMSE’s reduction for each model compared to RMSE of Random Walk model and the Diebold-Mariano test
statistics for h=1 month. Diebold-Mariano-West tests the differences between them. Positive test statistics indicate the tested model has a lower
RMSE than Random Walk.
14
Table 3: RMSE and Diebold-Mariano test results - Three-month horizon
RMSE decrease
Brazil -19% -15% -16% -17% -13% -15% -16% -15% -16% -18%
India -25% -21% -23% -21% -20% -22% -21% -22% -21% -22%
Mexico -23% -19% -22% -23% -18% -19% -23% -23% -24% -24%
Russia -22% -19% -20% -19% -16% -20% -20% -20% -20% -20%
Chile -26% -21% -21% -17% -16% -23% -23% -22% -21% -19%
Singapore -36% -30% -33% -31% -28% -31% -33% -30% -35% -32%
South Africa 23% -22% -19% -17% -17% -24% -22% -22% -17% -21%
Turkey -15% -22% -19% -18% -19% -21% -19% -23% -19% -19%
Colombia -24% -18% -19% -18% -17% -21% -20% -20% -20% -20%
Malaysia -27% -27% -28% -27% -25% -27% -28% -24% -28% -28%
Indonesia -27% -23% -23% -20% -18% -26% -26% -26% -24% -25%
Israel -33% -32% -34% -33% -34% -34% -34% -25% -34% -34%
Philippines -30% -30% -32% -23% -9% -32% -31% -29% -29% -24%
Thailand -37% -24% -24% -20% -19% -31% -31% -25% -31% -26%
DMW test statistic
Brazil 3.85 2.48 2.70 3.36 2.57 2.46 2.72 2.74 2.77 3.44
India 4.84 3.68 3.87 3.35 3.33 3.90 3.65 3.68 3.66 3.53
Mexico 4.59 3.25 4.58 4.39 2.90 3.33 4.61 4.40 4.53 4.51
Russia 4.29 3.47 3.62 3.26 2.78 3.59 3.84 3.71 3.90 3.53
Chile 5.00 3.90 3.95 2.64 2.79 4.28 4.47 3.80 4.23 3.25
Singapore 6.50 5.30 5.42 4.87 4.54 5.49 5.53 4.90 5.68 4.77
South Africa -0.55 4.18 4.21 3.40 3.60 4.47 4.88 4.52 2.64 4.64
Turkey 3.97 7.85 4.19 3.85 5.04 6.16 3.89 8.92 3.93 3.96
Colombia 4.58 3.18 3.40 3.28 2.96 3.66 3.59 3.41 3.65 3.66
Malaysia 5.03 5.26 5.59 5.29 4.63 5.34 5.54 4.61 5.60 5.34
Indonesia 5.15 4.67 4.85 4.67 3.69 5.35 5.65 5.33 5.36 5.72
Israel 5.72 7.44 6.32 5.78 6.95 7.74 6.38 3.67 6.45 6.18
Philippines 5.41 5.49 5.71 3.68 1.46 6.07 5.36 4.42 4.99 3.57
Thailand 6.60 3.77 3.50 2.62 2.72 5.93 5.18 3.97 5.19 3.99
Notes: This table presents RMSE’s reduction for each model compared to RMSE of Random Walk model and the Diebold-Mariano test
statistics for h=3 months. Diebold-Mariano-West tests the differences between them. Positive test statistics indicate the tested model has a
lower RMSE than Random Walk.
15
Table 4: Coverage rates - 70% - One-month horizon
Country Option Econ 1 Econ 2 Econ 3 Econ 4 Econ 5 Econ 6 Econ 7 Econ 8 Econ 9 Random Walk
Brazil 69% 66% 67% 64% 66% 67% 67% 69% 68% 65% 58%
0.80 0.35 0.44 0.15 0.35 0.55 0.44 0.80 0.67 0.20 0.00
India 67% 72% 55% 61% 71% 75% 58% 53% 60% 65% 56%
0.44 0.55 0.00 0.02 0.67 0.11 0.00 0.00 0.01 0.20 0.00
Mexico 70% 67% 57% 62% 65% 68% 57% 58% 56% 61% 53%
0.80 0.44 0.00 0.03 0.20 0.67 0.00 0.00 0.00 0.01 0.00
Russia 67% 41% 37% 44% 47% 44% 36% 44% 44% 47% 54%
0.44 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Chile 67% 66% 66% 69% 72% 66% 63% 66% 66% 71% 53%
0.44 0.35 0.35 0.93 0.55 0.35 0.07 0.27 0.27 0.67 0.00
Singapore 69% 66% 61% 69% 70% 69% 63% 61% 61% 70% 49%
0.80 0.27 0.01 0.80 0.80 0.80 0.07 0.02 0.01 0.80 0.00
South Africa 70% 75% 75% 72% 70% 75% 74% 73% 75% 73% 55%
0.93 0.15 0.11 0.44 0.80 0.11 0.20 0.27 0.11 0.35 0.00
Turkey 67% 72% 69% 64% 61% 72% 72% 73% 71% 60% 68%
0.55 0.55 0.80 0.15 0.02 0.55 0.55 0.35 0.67 0.01 0.67
Colombia 65% 64% 61% 58% 63% 66% 61% 64% 62% 60% 55%
0.20 0.15 0.01 0.00 0.07 0.35 0.02 0.11 0.03 0.01 0.00
Malaysia 67% 54% 49% 53% 56% 53% 50% 40% 50% 54% 50%
0.44 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Indonesia 73% 69% 76% 75% 72% 72% 79% 71% 80% 72% 57%
0.27 0.80 0.05 0.15 0.55 0.55 0.01 0.67 0.01 0.44 0.00
Israel 69% 78% 70% 67% 77% 78% 73% 77% 71% 71% 48%
0.93 0.01 0.80 0.44 0.03 0.02 0.27 0.03 0.67 0.67 0.00
Philippines 65% 76% 70% 70% 80% 83% 76% 82% 73% 73% 52%
0.20 0.05 0.80 0.80 0.01 0.00 0.05 0.00 0.27 0.35 0.00
Thailand 66% 72% 67% 63% 75% 79% 72% 64% 70% 70% 47%
0.35 0.55 0.44 0.07 0.15 0.01 0.44 0.11 0.80 0.80 0.00
Notes: This table presents forecast coverage rates (% of actual outcomes inside the 70% interval band) and their respective p-values (below
each %) for each country in one-month horizon, according to specified models.
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Table 5: Coverage rates - 70% - Three-month horizon
Brazil 69% 62% 70% 68% 65% 64% 70% 67% 69% 64% 50%
0.95 0.05 0.78 0.68 0.20 0.11 0.78 0.45 0.95 0.15 0.00
India 70% 74% 65% 66% 74% 77% 67% 53% 66% 68% 54%
0.92 0.19 0.20 0.35 0.19 0.03 0.56 0.00 0.35 0.68 0.00
Mexico 68% 58% 52% 54% 59% 60% 56% 59% 59% 59% 52%
0.68 0.00 0.00 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00
Russia 67% 52% 41% 42% 47% 55% 47% 50% 50% 49% 49%
0.45 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Chile 69% 66% 69% 71% 70% 67% 70% 67% 70% 71% 55%
0.81 0.35 0.81 0.66 0.78 0.56 0.78 0.56 0.92 0.66 0.00
Singapore 67% 74% 64% 61% 71% 73% 61% 66% 64% 62% 46%
0.56 0.26 0.15 0.02 0.66 0.34 0.02 0.27 0.11 0.05 0.00
South Africa 70% 69% 75% 71% 72% 75% 73% 73% 74% 72% 53%
0.78 0.95 0.14 0.66 0.43 0.14 0.34 0.34 0.19 0.43 0.00
Turkey 69% 74% 71% 59% 61% 75% 74% 79% 74% 64% 70%
0.95 0.19 0.66 0.00 0.02 0.10 0.19 0.01 0.26 0.11 0.92
Colombia 68% 67% 67% 60% 66% 73% 69% 69% 67% 66% 58%
0.68 0.56 0.45 0.01 0.27 0.34 0.81 0.95 0.56 0.35 0.00
Malaysia 66% 53% 45% 51% 51% 54% 46% 41% 46% 52% 47%
0.35 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Indonesia 74% 66% 77% 67% 64% 67% 79% 70% 79% 72% 59%
0.26 0.35 0.05 0.45 0.15 0.45 0.01 0.78 0.01 0.54 0.00
Israel 70% 72% 70% 71% 74% 77% 75% 82% 74% 73% 43%
0.92 0.43 0.78 0.66 0.19 0.05 0.14 0.00 0.26 0.34 0.00
Philippines 68% 85% 83% 83% 80% 90% 83% 90% 82% 85% 54%
0.68 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Thailand 64% 77% 72% 70% 75% 80% 77% 64% 77% 70% 50%
0.15 0.05 0.54 0.78 0.10 0.00 0.03 0.15 0.03 0.92 0.00
Notes: This table presents forecast coverage rates (% of actual outcomes inside the 70% interval band) and their respective p-values (below
each %) for each country in three-month horizon, according to specified models.
17
Berkowitz test results also endorse Option-Implied model as a better global density forecast model
for short-term horizon. According to Table 6, for h=1, there is no single country that does not pass the
Berkowitz test for Option model and for some economic models (the two versions of monetary model and
conventional interest rate model). Unlike, no single country passes the test in the case of the benchmark
model. For h=3 at Table 7, as expected, Berkowitz test loses its power and the performance of all models
gets worse. Only five currencies pass the test in the Option-Implied model case. Anyway, again, no single
country passes the test in the case of the benchmark model.
Table 6: Berkowitz test results - One-month horizon
Brazil 0.68 0.02 0.11 0.15 0.05 0.16 0.45 0.14 0.51 0.11 0.00
India 0.82 0.90 0.00 0.02 0.80 0.34 0.01 0.00 0.03 0.66 0.00
Mexico 0.85 0.07 0.04 0.03 0.01 0.11 0.01 0.03 0.01 0.08 0.00
Russia 0.49 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Chile 0.51 0.11 0.07 0.08 0.13 0.45 0.10 0.24 0.33 0.20 0.00
Singapore 0.83 0.76 0.30 0.10 0.06 0.47 0.46 0.06 0.45 0.14 0.00
South Africa 0.84 0.73 0.40 0.87 0.94 0.36 0.41 0.53 0.39 0.91 0.00
Turkey 0.46 0.14 0.08 0.16 0.07 0.06 0.14 0.16 0.07 0.00 0.00
Colombia 0.72 0.11 0.02 0.00 0.03 0.25 0.08 0.08 0.05 0.02 0.00
Malaysia 0.68 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Indonesia 0.51 0.27 0.02 0.19 0.67 0.16 0.03 0.11 0.02 0.59 0.00
Israel 0.80 0.02 0.95 0.96 0.09 0.01 0.65 0.01 0.98 0.93 0.00
Philippines 0.80 0.24 0.83 0.28 0.10 0.00 0.00 0.00 0.77 0.08 0.00
Thailand 0.67 0.32 0.75 0.32 0.05 0.02 0.20 0.01 0.27 0.33 0.00
Notes: This table presents p-values for the Berkowitz global density forecast test for each country for one month horizon, according to specified
models. The null hypothesis is ezt+1 ĩ.i.d. N(0,1).
Table 7: Berkowitz test results - Three-month horizon
Brazil 0.28 1.00 0.00 0.00 0.00 1.00 0.31 1.00 0.00 0.61 0.00
India 0.00 0.00 1.00 0.00 0.00 0.00 0.89 0.00 1.00 0.16 0.00
Mexico 0.01 0.00 0.00 0.00 0.00 1.00 0.73 0.00 0.00 0.16 0.00
Russia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Chile 1.00 0.05 0.00 0.13 0.02 0.07 0.22 0.89 0.48 0.00 0.00
Singapore 0.00 0.00 0.00 1.00 0.00 0.00 0.74 0.00 0.00 0.09 0.00
South Africa 1.00 1.00 0.04 0.91 0.06 0.00 0.34 0.79 0.81 0.00 0.00
Turkey 1.00 1.00 0.00 1.00 0.22 1.00 0.00 0.00 0.00 1.00 0.00
Colombia 0.00 0.30 0.06 0.00 0.00 1.00 0.58 0.87 1.00 0.03 0.00
Malaysia 0.00 0.27 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00
Indonesia 0.10 0.01 0.02 0.00 0.00 1.00 0.00 1.00 0.01 0.07 0.00
Israel 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Philippines 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00
Thailand 0.91 0.00 0.00 0.00 0.00 0.00 0.00 0.13 0.00 0.00 0.00
Notes: This table presents p-values for the Berkowitz global density forecast test for each country for three-month horizon, according to
specified models. The null hypothesis is e
zt+1 ĩ.i.d. N(0,1).
Tables 8 and 9 show LDPS results for each model, under which a higher score implies a better model.
Option-Implied model is the first in the rank for 11 out of 14 countries in one-month horizon. Random Walk
is the model that occupies the last position more frequently. As horizon increases, score of both models
decreases, as expected, but Option-Implied model keeps ranking first for the majority of the countries (8
18
out 14). Most of economic models never get the first position in the rank, performing worse than Random
Walk.
Table 8: Log Density Predictive Score - LDPS - One-month horizon
Brazil 0.59 0.27 0.62 0.20 -0.60 0.11 0.23 0.37 -0.13 0.48 -0.02
India -1.69 -1.89 -2.66 -3.63 -1.89 -1.84 -2.90 -3.06 -2.45 -2.10 -2.16
Mexico -0.90 -1.86 -2.01 -1.55 -4.93 -2.42 -1.65 -2.54 -1.86 -1.82 -1.62
Russia -2.13 -7.19 -7.54 -9.84 -8.64 -7.99 -5.39 -4.91 -5.78 -5.29 -2.79
Chile -4.46 -4.61 -4.48 -4.52 -4.48 -4.65 -4.54 -4.67 -4.70 -4.51 -4.96
Singapore 2.45 2.15 1.85 2.05 2.22 2.27 1.93 2.07 2.01 2.08 1.87
South Africa -0.70 -0.87 -0.88 -0.79 -0.78 -0.79 -0.78 -0.82 -0.84 -0.76 -1.24
Turkey 0.41 0.30 0.48 0.52 0.50 0.25 0.67 0.35 0.56 0.39 -1.32
Colombia -6.06 -6.33 -6.59 -7.50 -7.81 -6.16 -6.27 -6.29 -6.51 -6.28 -6.57
Malaysia 1.21 -6.24 -11.07 -2.57 -1.94 -4.23 -4.41 -9.22 -12.76 -4.91 0.65
Indonesia -7.12 -8.72 -7.77 -9.37 -8.51 -7.99 -7.18 -8.65 -7.33 -9.46 -7.97
Israel 1.18 1.03 0.94 0.90 1.03 1.04 0.93 1.03 0.96 1.06 0.52
Philippines -1.10 -1.58 -2.93 -4.76 -1.34 -1.20 -1.18 -1.20 -1.22 -1.26 -1.54
Thailand -0.95 -0.94 -0.93 -1.24 -1.00 -0.92 -0.91 -1.31 -0.89 -1.83 -1.31
Notes: This table presents the average values of log density predictive scores for each country and each model. The higher the score, the better
the model.
Table 9: Log Density Predictive Score - LDPS - Three-month horizon
Brazil -0.58 -0.76 -0.03 -0.93 -1.25 -5.86 -0.12 -5.01 -0.04 -0.65 -0.40
India -2.21 -2.44 -2.70 -3.80 -2.50 -2.41 -2.92 -3.57 -2.76 -2.91 -2.58
Mexico -3.86 -6.21 -3.36 -3.12 -5.25 -4.97 -2.90 -6.77 -3.15 -2.76 -1.92
Russia -3.14 -9.75 -11.77 -9.36 -10.19 -16.34 -5.42 -12.01 -7.58 -12.90 -3.40
Chile -5.00 -7.09 -6.87 -5.26 -5.16 -5.18 -5.18 -5.72 -5.38 -5.03 -5.39
Singapore 1.75 1.74 1.43 1.61 1.68 1.77 1.66 -1.82 1.78 1.63 1.23
South Africa -2.00 -2.79 -1.59 -1.68 -1.69 -1.41 -1.93 -1.56 -1.51 -1.35 -1.75
Turkey 0.22 -0.32 0.03 -0.32 -0.72 -3.36 0.02 -1.34 0.06 -0.10 -0.74
Colombia -6.54 -10.89 -9.60 -8.32 -7.83 -6.98 -7.28 -6.88 -7.10 -9.62 -7.04
Malaysia 0.55 -5.42 -2.76 -3.95 -5.25 -3.35 -4.97 -11.98 -8.42 -3.49 0.07
Indonesia -9.97 -11.89 -8.10 -8.53 -9.02 -11.82 -8.02 -13.99 -7.99 -8.18 -8.31
Israel 0.60 -0.02 0.13 0.53 0.43 0.44 0.51 0.43 0.50 0.52 0.00
Philippines -1.60 -1.83 -1.72 -1.76 -2.46 -1.79 -1.73 -1.79 -2.92 -1.78 -2.05
Thailand -1.68 -1.56 -1.51 -2.20 -1.56 -1.53 -1.48 -2.48 -1.48 -1.53 -2.01
Notes: This table presents the average values of log density predictive scores for each country and each model. The higher the score, the better
the model.
In Tables 10 and 11, there are Amisano-Giacomini (2007) test results, which compare LDPS between
the benchmark model and the other models. A negative test statistic indicates a higher LDPS of the model
compared to Random Walk. The one-month horizon test rejects the null hypothesis that the Option-Implied
have equal LDPS, with evidence that the LDPS of this model is higher than the benchmark for all countries.
Economic models also perform well, but none of them pass Amisano-Giacomini test for all countries like
Option-Implied does. For three-month horizon, all models get worse results and perform in a similar way:
statistically significant higher LDPS than benchmark model for half of the countries on average.
For a local analysis approach, we apply two local density forecast procedures: local forecast cover-
age rate (LFCR) evaluation and Kupiec test. Tables 12 and 13 present LFCR results as the percentage of
19
Table 10: Amisano-Giacomini test - One-month horizon
Random Walk
Brazil -0.59 -0.26 -0.60 -0.19 0.62 -0.10 -0.22 -0.36 0.14 -0.47
0.00 0.48 0.00 0.35 0.36 0.85 0.63 0.19 0.85 0.00
India -0.44 -0.25 0.52 1.50 -0.25 -0.30 0.76 0.96 0.31 -0.04
0.00 0.04 0.31 0.10 0.02 0.00 0.31 0.04 0.24 0.83
Mexico -0.69 0.26 0.41 -0.05 3.32 0.82 0.05 0.94 0.26 0.22
0.00 0.61 0.39 0.87 0.34 0.27 0.91 0.34 0.68 0.72
Russia -0.65 4.39 4.80 7.05 5.90 5.20 2.63 2.15 3.03 2.53
0.00 0.07 0.00 0.13 0.08 0.19 0.03 0.04 0.11 0.18
Chile -0.48 -0.32 -0.45 -0.42 -0.46 -0.28 -0.39 -0.26 -0.23 -0.43
0.00 0.02 0.00 0.00 0.00 0.10 0.00 0.14 0.25 0.00
Singapore -0.59 -0.31 0.00 -0.20 -0.37 -0.43 -0.08 -0.23 -0.17 -0.23
0.00 0.03 0.99 0.55 0.01 0.00 0.79 0.24 0.58 0.26
South Africa -0.54 -0.38 -0.37 -0.46 -0.47 -0.46 -0.47 -0.43 -0.42 -0.49
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Turkey -1.76 -0.76 -0.94 -0.97 -0.95 -0.71 -1.12 -0.81 -1.02 -0.84
0.01 0.01 0.00 0.00 0.00 0.01 0.00 0.01 0.00 0.01
Colombia -0.51 -0.25 0.02 0.93 1.34 -0.41 -0.30 -0.28 -0.07 -0.30
0.00 0.10 0.97 0.42 0.35 0.00 0.04 0.03 0.82 0.04
Malaysia -0.58 6.86 12.23 3.25 2.56 4.85 5.13 9.84 13.88 5.58
0.00 0.08 0.02 0.11 0.25 0.06 0.05 0.03 0.02 0.11
Indonesia -0.83 0.75 -0.20 1.46 0.54 0.02 -0.79 0.68 -0.64 1.49
0.00 0.43 0.53 0.28 0.58 0.97 0.00 0.46 0.00 0.26
Israel -0.65 -0.51 -0.42 -0.38 -0.51 -0.52 -0.41 -0.51 -0.44 -0.55
0.00 0.00 0.01 0.04 0.00 0.00 0.00 0.00 0.00 0.00
Philippines -0.46 0.01 1.36 3.22 -0.23 -0.37 -0.39 -0.37 -0.35 -0.31
0.00 0.97 0.44 0.36 0.01 0.00 0.00 0.00 0.00 0.00
Thailand -0.34 -0.35 -0.36 -0.05 -0.29 -0.37 -0.38 0.02 -0.40 0.54
0.00 0.00 0.00 0.78 0.00 0.00 0.00 0.94 0.00 0.53
Notes: This table presents p-values for the null hypothesis of zero average difference in LDPS between benchmark model and the specified
model.
20
Table 11: Amisano-Giacomini test - Three-month horizon
Random Walk
Brazil 0.20 0.33 -0.41 0.50 0.81 5.46 -0.32 4.58 -0.39 0.21
0.61 0.52 0.00 0.30 0.20 0.17 0.02 0.15 0.00 0.53
India -0.37 -0.17 0.09 1.19 -0.12 -0.20 0.30 0.95 0.15 0.30
0.00 0.07 0.78 0.26 0.29 0.04 0.46 0.05 0.69 0.47
Mexico 1.88 4.29 1.44 1.20 3.33 3.08 0.98 4.85 1.23 0.84
0.16 0.20 0.13 0.25 0.03 0.08 0.24 0.11 0.23 0.32
Russia -0.27 6.42 8.53 6.02 6.74 12.90 1.97 8.78 4.18 9.45
0.38 0.03 0.03 0.01 0.02 0.02 0.03 0.01 0.02 0.01
Chile -0.39 1.70 1.48 -0.13 -0.23 -0.21 -0.21 0.33 -0.01 -0.36
0.00 0.25 0.20 0.56 0.09 0.22 0.20 0.46 0.98 0.00
Singapore -0.55 -0.47 -0.16 -0.33 -0.41 -0.50 -0.39 3.10 -0.51 -0.36
0.01 0.00 0.60 0.05 0.00 0.00 0.00 0.18 0.00 0.02
South Africa 0.23 1.01 -0.19 -0.10 -0.08 -0.37 0.15 -0.22 -0.27 -0.43
0.76 0.47 0.27 0.68 0.84 0.00 0.81 0.29 0.16 0.00
Turkey -0.97 -0.67 -1.02 -0.67 -0.27 2.38 -1.01 0.36 -1.05 -0.89
0.00 0.02 0.00 0.02 0.50 0.34 0.00 0.71 0.00 0.00
Colombia -0.46 3.85 2.63 1.44 0.79 -0.06 0.24 -0.16 0.07 2.59
0.00 0.26 0.32 0.13 0.11 0.86 0.70 0.42 0.90 0.28
Malaysia -0.56 5.53 2.99 4.04 5.41 3.48 5.07 12.34 8.88 3.57
0.00 0.05 0.04 0.01 0.04 0.08 0.06 0.05 0.03 0.01
Indonesia 1.67 3.74 -0.16 0.33 0.77 3.72 -0.28 5.91 -0.31 -0.12
0.35 0.10 0.68 0.39 0.12 0.23 0.35 0.16 0.26 0.58
Israel -0.59 0.05 -0.10 -0.50 -0.40 -0.41 -0.48 -0.39 -0.47 -0.49
0.00 0.92 0.81 0.00 0.01 0.00 0.00 0.00 0.00 0.00
Philippines -0.50 -0.20 -0.31 -0.26 0.43 -0.24 -0.30 -0.24 0.89 -0.25
0.00 0.02 0.00 0.00 0.36 0.00 0.00 0.00 0.29 0.00
Thailand -0.34 -0.39 -0.44 0.25 -0.39 -0.42 -0.46 0.55 -0.46 -0.42
0.17 0.00 0.00 0.71 0.00 0.00 0.00 0.37 0.00 0.00
Notes: This table presents p-values for the null hypothesis of zero average difference in LDPS between benchmark model and the specified
model.
21
outcomes below median quantile level, for each model at one- and three-month horizons. Tables 14 and
15 show p-values for the Kupiec test for median quantile level at one- and three-month horizons. 7 In
Kupiec test, it is desirable not to reject the null hypothesis, i.e., it is expected to obtain high p-values. For
h=1, Option-Implied is the model presenting less rejections (6 out of 126 occasions: 14 countries times 9
quantiles). Random Walk is rejected in every occasion, but one. Economic models show an intermediate
but satisfactory performance, presenting high p-values in most of the occasions. Models’ performance is
qualitatively identical for h=3.
Table 12: Local Forecast coverage rate for median - One-month horizon
Brazil 0.47 0.44 0.42 0.46 0.46 0.41 0.41 0.42 0.41 0.44 0.82
India 0.52 0.52 0.51 0.48 0.51 0.50 0.48 0.48 0.48 0.47 0.84
Mexico 0.52 0.44 0.52 0.54 0.42 0.44 0.50 0.47 0.52 0.50 0.88
Russia 0.48 0.43 0.46 0.43 0.45 0.43 0.46 0.42 0.47 0.44 0.88
Chile 0.48 0.48 0.47 0.40 0.42 0.47 0.46 0.44 0.46 0.41 0.85
Singapore 0.47 0.47 0.47 0.43 0.43 0.43 0.45 0.42 0.44 0.43 0.84
South Africa 0.47 0.49 0.50 0.53 0.50 0.49 0.51 0.47 0.51 0.53 0.86
Turkey 0.47 0.42 0.38 0.38 0.43 0.44 0.44 0.47 0.44 0.38 0.93
Colombia 0.45 0.42 0.43 0.45 0.42 0.42 0.44 0.42 0.42 0.44 0.84
Malaysia 0.46 0.48 0.48 0.47 0.44 0.48 0.49 0.46 0.48 0.47 0.88
Indonesia 0.45 0.47 0.49 0.52 0.47 0.47 0.47 0.48 0.47 0.49 0.90
Israel 0.49 0.54 0.50 0.50 0.53 0.56 0.48 0.48 0.51 0.48 0.85
Philippines 0.48 0.52 0.49 0.42 0.49 0.53 0.49 0.52 0.51 0.41 0.84
Thailand 0.52 0.52 0.51 0.48 0.48 0.50 0.50 0.46 0.50 0.48 0.81
Notes: This table presents local forecast coverage rates as the percentage of actual outcomes below the median level for specified models.
Table 13: Local Forecast coverage rate for median - Three-month horizon
Brazil 0.53 0.41 0.42 0.45 0.40 0.38 0.40 0.38 0.39 0.43 0.82
India 0.56 0.51 0.50 0.46 0.50 0.49 0.43 0.43 0.44 0.41 0.81
Mexico 0.49 0.42 0.48 0.47 0.41 0.40 0.50 0.43 0.47 0.46 0.82
Russia 0.53 0.46 0.48 0.44 0.45 0.48 0.48 0.49 0.50 0.45 0.88
Chile 0.52 0.46 0.43 0.40 0.41 0.46 0.40 0.38 0.41 0.37 0.84
Singapore 0.56 0.46 0.45 0.41 0.43 0.48 0.44 0.45 0.47 0.38 0.83
South Africa 0.47 0.46 0.48 0.54 0.54 0.47 0.46 0.44 0.47 0.50 0.84
Turkey 0.46 0.40 0.37 0.31 0.30 0.40 0.36 0.44 0.38 0.29 0.91
Colombia 0.50 0.38 0.36 0.36 0.40 0.36 0.38 0.36 0.40 0.35 0.84
Malaysia 0.51 0.51 0.52 0.50 0.47 0.51 0.51 0.47 0.52 0.50 0.86
Indonesia 0.49 0.51 0.50 0.50 0.45 0.49 0.50 0.46 0.51 0.48 0.88
Israel 0.54 0.63 0.57 0.48 0.55 0.63 0.52 0.49 0.57 0.52 0.85
Philippines 0.47 0.51 0.49 0.35 0.46 0.47 0.47 0.46 0.45 0.38 0.83
Thailand 0.47 0.51 0.47 0.44 0.50 0.53 0.45 0.47 0.44 0.40 0.83
Notes: This table presents local forecast coverage rates as the percentage of actual outcomes below the median level for specified models.
7 For other quantile levels, see Appendix.
22
Table 14: Kupiec test for median - One-month horizon
Brazil 0.47 0.44 0.42 0.46 0.46 0.41 0.41 0.42 0.41 0.44 0.82
India 0.52 0.52 0.51 0.48 0.51 0.50 0.48 0.48 0.48 0.47 0.84
Mexico 0.52 0.44 0.52 0.54 0.42 0.44 0.50 0.47 0.52 0.50 0.88
Russia 0.48 0.43 0.46 0.43 0.45 0.43 0.46 0.42 0.47 0.44 0.88
Chile 0.48 0.48 0.47 0.40 0.42 0.47 0.46 0.44 0.46 0.41 0.85
Singapore 0.47 0.47 0.47 0.43 0.43 0.43 0.45 0.42 0.44 0.43 0.84
South Africa 0.47 0.49 0.50 0.53 0.50 0.49 0.51 0.47 0.51 0.53 0.86
Turkey 0.47 0.42 0.38 0.38 0.43 0.44 0.44 0.47 0.44 0.38 0.93
Colombia 0.45 0.42 0.43 0.45 0.42 0.42 0.44 0.42 0.42 0.44 0.84
Malaysia 0.46 0.48 0.48 0.47 0.44 0.48 0.49 0.46 0.48 0.47 0.88
Indonesia 0.45 0.47 0.49 0.52 0.47 0.47 0.47 0.48 0.47 0.49 0.90
Israel 0.49 0.54 0.50 0.50 0.53 0.56 0.48 0.48 0.51 0.48 0.85
Philippines 0.48 0.52 0.49 0.42 0.49 0.53 0.49 0.52 0.51 0.41 0.84
Thailand 0.52 0.52 0.51 0.48 0.48 0.50 0.50 0.46 0.50 0.48 0.81
Notes: This table presents p-values for the Kupiec test, which checks the statistical significance of LFCR compared to the median level, for the
specified models.
Table 15: Kupiec test for median - Three-month horizon
Brazil 0.43 0.02 0.04 0.21 0.01 0.00 0.01 0.00 0.00 0.06 0.00
India 0.12 0.88 1.00 0.27 1.00 0.75 0.08 0.08 0.12 0.02 0.00
Mexico 0.75 0.04 0.53 0.43 0.02 0.01 1.00 0.08 0.43 0.27 0.00
Russia 0.43 0.35 0.64 0.16 0.21 0.53 0.64 0.75 1.00 0.21 0.00
Chile 0.64 0.35 0.08 0.01 0.02 0.27 0.01 0.00 0.02 0.00 0.00
Singapore 0.12 0.35 0.21 0.02 0.06 0.53 0.16 0.21 0.43 0.00 0.00
South Africa 0.43 0.35 0.53 0.35 0.27 0.43 0.35 0.12 0.43 1.00 0.00
Turkey 0.35 0.01 0.00 0.00 0.00 0.01 0.00 0.12 0.00 0.00 0.00
Colombia 1.00 0.00 0.00 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00
Malaysia 0.88 0.88 0.64 1.00 0.43 0.88 0.88 0.43 0.64 1.00 0.00
Indonesia 0.88 0.88 1.00 1.00 0.21 0.75 1.00 0.27 0.88 0.53 0.00
Israel 0.35 0.00 0.08 0.53 0.21 0.00 0.64 0.75 0.08 0.64 0.00
Philippines 0.43 0.88 0.75 0.00 0.27 0.43 0.43 0.35 0.21 0.00 0.00
Thailand 0.43 0.75 0.43 0.12 1.00 0.43 0.21 0.43 0.12 0.01 0.00
Notes: This table presents p-values for the Kupiec test, which checks the statistical significance of LFCR compared to the median level, for the
specified models.
23
4 Conclusion
This article starts from the promising results of the financial model used in Gaglianone and Marins (2017)
for forecasting point and density estimates for the exchange rate in Brazil. We extend the study to other 13
emerging economies: India, Mexico, Russia, Chile, Singapore, South Africa, Turkey, Colombia, Malaysia,
Indonesia, Israel, Philippines and Thailand. Density forecasts extracted from option data and standard
economic models are compared to the elected benchmark model for FX forecasting after Meese and Rogoff
(1983a, b) paper, the Random Walk model.
We generate monthly densities from May 2008 to January 2022 for those emerging currencies accord-
ing to ten models besides Random Walk: Option-Implied model and 9 economic driven models including
taylor-rule based, purchasing power parity theory, monetary model and conventional interest rate model.
We implement statistical tests to evaluate the forecasted densities. The tests are classified in point estimates
tests, local and global densities tests.
As for Brazil in Gaglianone and Marins (2017), we show the better short-run forecast performance of
Option-implied model compared to fundamental-based foreign exchange models for other emerging coun-
tries. Goodness-of-fit of three-month horizon densities is lower for all of the models, but, as in Gaglianone
and Marins (2017), Option-Implied model still outperforms all the other models for all countries in a one-
and three-month ahead horizons. In terms of RMSE for example, Option model statistically beats economic
models and Random Walk model in almost all cases, presenting the highest error reductions for the majority
of countries, varying between 21% and 32% for one-month-ahead horizon and between 15% and 37% for
three-month-ahead horizon.
While macroeconomic theory has proposed several potential predictors for exchange rates based upon
economic fundamentals, the forecasting contributions of such approaches have been under question since
the highly influential findings of Meese and Rogoff. Since then, an extensive body of literature has studied
the forecasting performances of empirical exchange rate models and several explanations have been put for-
ward. We intend to contribute to this discussion by including a financial model in the roll of FX forecasting
models, essentially designed to incorporate a valuable information set about the probabilities that investors
would attach to future asset prices. Results obtained in this paper do not discourage the use of economic
fundamentals in predicting FX rates. Nevertheless, it sheds some light on the need to include financial vari-
ables, namely FX option data, on the prediction models, as these data are totally forward-looking, instead
of the historical-based economic variables. Data availability is another aspect to be considered, as option
prices, differently from economic variables, are daily available and promptly obtained, which is a clear
advantage if the intention is forecasting in a higher frequency way. It is worthy of research, especially for
short-run forecasting, and it remains on our agenda for future research.
24
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26
6 Appendix
Figure A.1: Median - One-month horizon
Notes: This figure shows the medians of the one-month-ahead forecasted densities for each country.
Figure A.2: Standard deviation - One-month horizon
Notes: This figure shows the standard deviation of the one-month-ahead forecasted densities for each country.
27
Figure A.3: Skewness - One-month horizon
Notes: This figure shows the skewness of the one-month-ahead forecasted densities for each country.
Figure A.4: Median - Three-month horizon
Notes: This figure shows the median of the three-month-ahead forecasted densities for each country.
28
Figure A.5: Standard deviation - Three-month horizon
Notes: This figure shows the standard deviation of the three-month-ahead forecasted densities for each country.
Figure A.6: Skewness - Three-month horizon
Notes: This figure shows the skewness of the three-month-ahead forecasted densities for each country.
29
Table A.1: Local Forecast coverage rate for selected
quantiles - One-month horizon
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Option
Brazil 0.10 0.21 0.26 0.38 0.47 0.57 0.67 0.78 0.88
India 0.07 0.15 0.29 0.38 0.52 0.60 0.68 0.76 0.87
Mexico 0.09 0.19 0.27 0.37 0.52 0.59 0.70 0.79 0.87
Russia 0.09 0.23 0.32 0.38 0.48 0.59 0.68 0.76 0.88
Chile 0.10 0.22 0.28 0.37 0.48 0.56 0.64 0.75 0.88
Singapore 0.10 0.24 0.32 0.41 0.47 0.59 0.67 0.75 0.88
South Africa 0.12 0.21 0.32 0.36 0.47 0.58 0.68 0.79 0.89
Turkey 0.10 0.20 0.32 0.40 0.47 0.57 0.67 0.78 0.90
Colombia 0.10 0.21 0.30 0.38 0.45 0.53 0.62 0.77 0.89
Malaysia 0.10 0.22 0.30 0.39 0.46 0.55 0.65 0.75 0.92
Indonesia 0.10 0.15 0.24 0.33 0.45 0.58 0.67 0.82 0.92
Israel 0.10 0.22 0.33 0.41 0.49 0.58 0.66 0.75 0.87
Philippines 0.10 0.19 0.30 0.38 0.48 0.60 0.67 0.74 0.88
Thailand 0.09 0.22 0.32 0.41 0.52 0.61 0.69 0.76 0.85
Econ 1
Brazil 0.09 0.20 0.27 0.32 0.44 0.56 0.65 0.76 0.85
India 0.12 0.18 0.28 0.38 0.52 0.62 0.72 0.81 0.89
Mexico 0.08 0.17 0.28 0.36 0.44 0.53 0.65 0.73 0.85
Russia 0.19 0.25 0.35 0.38 0.43 0.47 0.53 0.59 0.74
Chile 0.12 0.19 0.28 0.39 0.48 0.56 0.67 0.77 0.87
Singapore 0.10 0.18 0.28 0.39 0.47 0.53 0.65 0.75 0.87
South Africa 0.08 0.15 0.25 0.38 0.49 0.60 0.69 0.81 0.90
Turkey 0.08 0.15 0.24 0.32 0.42 0.50 0.61 0.74 0.90
Colombia 0.12 0.21 0.31 0.40 0.42 0.48 0.63 0.72 0.85
Malaysia 0.13 0.25 0.37 0.42 0.48 0.52 0.55 0.65 0.78
Indonesia 0.12 0.18 0.26 0.35 0.47 0.59 0.70 0.79 0.88
Israel 0.07 0.19 0.33 0.45 0.54 0.67 0.76 0.86 0.95
Philippines 0.10 0.14 0.23 0.35 0.52 0.64 0.76 0.87 0.95
Thailand 0.12 0.22 0.33 0.40 0.52 0.59 0.70 0.82 0.93
Continued on next page
30
Table A.1 – Continued from previous page
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 2
Brazil 0.09 0.17 0.24 0.32 0.42 0.57 0.64 0.75 0.87
India 0.18 0.28 0.35 0.41 0.51 0.59 0.66 0.73 0.83
Mexico 0.16 0.25 0.33 0.41 0.52 0.59 0.68 0.75 0.84
Russia 0.21 0.28 0.36 0.40 0.46 0.48 0.52 0.56 0.73
Chile 0.12 0.19 0.27 0.35 0.47 0.56 0.65 0.76 0.88
Singapore 0.11 0.19 0.28 0.36 0.47 0.53 0.63 0.69 0.83
South Africa 0.08 0.18 0.27 0.38 0.50 0.60 0.69 0.82 0.91
Turkey 0.08 0.16 0.24 0.33 0.38 0.50 0.61 0.73 0.91
Colombia 0.15 0.25 0.33 0.41 0.43 0.51 0.62 0.72 0.83
Malaysia 0.19 0.30 0.43 0.47 0.48 0.48 0.53 0.66 0.79
Indonesia 0.06 0.13 0.25 0.36 0.49 0.62 0.73 0.84 0.92
Israel 0.10 0.21 0.32 0.42 0.50 0.63 0.72 0.80 0.90
Philippines 0.11 0.18 0.29 0.41 0.49 0.59 0.73 0.82 0.91
Thailand 0.11 0.25 0.35 0.42 0.51 0.59 0.66 0.79 0.90
Econ 3
Brazil 0.13 0.21 0.28 0.35 0.46 0.59 0.67 0.78 0.87
India 0.16 0.26 0.34 0.39 0.48 0.59 0.69 0.75 0.87
Mexico 0.13 0.26 0.35 0.44 0.54 0.60 0.68 0.75 0.85
Russia 0.21 0.27 0.35 0.38 0.43 0.47 0.51 0.59 0.77
Chile 0.12 0.16 0.22 0.31 0.40 0.53 0.67 0.78 0.87
Singapore 0.07 0.14 0.22 0.30 0.43 0.50 0.61 0.71 0.85
South Africa 0.10 0.19 0.29 0.40 0.53 0.59 0.71 0.82 0.90
Turkey 0.11 0.18 0.25 0.35 0.38 0.52 0.61 0.70 0.88
Colombia 0.15 0.25 0.34 0.41 0.45 0.51 0.61 0.70 0.83
Malaysia 0.20 0.30 0.39 0.44 0.47 0.48 0.56 0.69 0.81
Indonesia 0.15 0.20 0.31 0.39 0.52 0.67 0.75 0.87 0.94
Israel 0.08 0.22 0.34 0.44 0.50 0.56 0.70 0.76 0.87
Philippines 0.10 0.15 0.24 0.33 0.42 0.53 0.67 0.81 0.87
Thailand 0.12 0.25 0.34 0.40 0.48 0.57 0.64 0.75 0.87
31
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 4
Brazil 0.12 0.21 0.26 0.33 0.46 0.57 0.66 0.79 0.86
India 0.12 0.18 0.25 0.36 0.51 0.63 0.72 0.80 0.88
Mexico 0.09 0.15 0.25 0.33 0.42 0.52 0.62 0.73 0.85
Russia 0.18 0.26 0.35 0.39 0.45 0.51 0.56 0.61 0.79
Chile 0.12 0.17 0.25 0.33 0.42 0.50 0.68 0.78 0.89
Singapore 0.07 0.15 0.21 0.32 0.43 0.52 0.64 0.73 0.87
South Africa 0.10 0.19 0.28 0.39 0.50 0.60 0.71 0.80 0.89
Turkey 0.11 0.15 0.25 0.35 0.43 0.52 0.61 0.68 0.85
Colombia 0.13 0.22 0.31 0.39 0.42 0.51 0.62 0.75 0.84
Malaysia 0.12 0.27 0.37 0.38 0.44 0.51 0.55 0.71 0.82
Indonesia 0.13 0.20 0.27 0.38 0.47 0.59 0.72 0.82 0.91
Israel 0.07 0.20 0.35 0.46 0.53 0.66 0.73 0.85 0.93
Philippines 0.08 0.15 0.26 0.36 0.49 0.60 0.72 0.85 0.95
Thailand 0.08 0.21 0.30 0.39 0.48 0.57 0.72 0.82 0.93
Econ 5
Brazil 0.11 0.19 0.25 0.29 0.41 0.53 0.64 0.72 0.87
India 0.08 0.15 0.25 0.38 0.50 0.63 0.70 0.83 0.93
Mexico 0.08 0.17 0.27 0.35 0.44 0.53 0.64 0.73 0.87
Russia 0.19 0.29 0.36 0.40 0.43 0.48 0.56 0.64 0.78
Chile 0.12 0.21 0.26 0.39 0.47 0.55 0.65 0.77 0.87
Singapore 0.10 0.18 0.26 0.36 0.43 0.53 0.65 0.76 0.88
South Africa 0.06 0.16 0.25 0.35 0.49 0.60 0.69 0.79 0.91
Turkey 0.07 0.15 0.20 0.32 0.44 0.57 0.64 0.73 0.91
Colombia 0.11 0.19 0.32 0.41 0.42 0.49 0.64 0.73 0.85
Malaysia 0.13 0.25 0.38 0.42 0.48 0.52 0.55 0.64 0.78
Indonesia 0.12 0.17 0.24 0.33 0.47 0.58 0.67 0.81 0.90
Israel 0.07 0.18 0.32 0.42 0.56 0.65 0.78 0.87 0.95
Philippines 0.05 0.10 0.24 0.35 0.53 0.64 0.75 0.87 0.95
Thailand 0.05 0.20 0.30 0.39 0.50 0.59 0.70 0.82 0.92
32
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 6
Brazil 0.11 0.18 0.25 0.32 0.41 0.56 0.65 0.76 0.88
India 0.10 0.23 0.34 0.40 0.48 0.55 0.64 0.73 0.85
Mexico 0.18 0.24 0.32 0.39 0.50 0.58 0.66 0.73 0.83
Russia 0.22 0.35 0.41 0.43 0.46 0.50 0.55 0.60 0.75
Chile 0.12 0.22 0.25 0.38 0.46 0.54 0.65 0.75 0.88
Singapore 0.11 0.20 0.27 0.36 0.45 0.53 0.61 0.71 0.84
South Africa 0.07 0.18 0.27 0.37 0.51 0.59 0.67 0.81 0.92
Turkey 0.09 0.16 0.22 0.33 0.44 0.54 0.64 0.75 0.89
Colombia 0.13 0.23 0.33 0.41 0.44 0.52 0.62 0.74 0.84
Malaysia 0.18 0.29 0.43 0.48 0.49 0.49 0.52 0.64 0.78
Indonesia 0.07 0.14 0.24 0.35 0.47 0.61 0.73 0.86 0.93
Israel 0.07 0.20 0.31 0.39 0.48 0.62 0.70 0.79 0.89
Philippines 0.07 0.15 0.31 0.42 0.49 0.58 0.70 0.83 0.92
Thailand 0.07 0.24 0.32 0.39 0.50 0.59 0.67 0.79 0.91
Econ 7
Brazil 0.07 0.18 0.25 0.32 0.42 0.55 0.63 0.73 0.87
India 0.14 0.25 0.38 0.43 0.48 0.53 0.60 0.70 0.81
Mexico 0.15 0.22 0.31 0.37 0.47 0.55 0.65 0.71 0.85
Russia 0.19 0.28 0.37 0.41 0.42 0.48 0.54 0.62 0.76
Chile 0.12 0.19 0.25 0.35 0.44 0.52 0.64 0.75 0.87
Singapore 0.11 0.21 0.26 0.32 0.42 0.52 0.59 0.68 0.84
South Africa 0.07 0.15 0.25 0.35 0.47 0.61 0.68 0.78 0.88
Turkey 0.09 0.15 0.21 0.34 0.47 0.58 0.64 0.76 0.91
Colombia 0.10 0.19 0.32 0.39 0.42 0.48 0.61 0.73 0.85
Malaysia 0.18 0.30 0.38 0.41 0.46 0.51 0.53 0.59 0.73
Indonesia 0.09 0.19 0.25 0.36 0.48 0.58 0.68 0.79 0.88
Israel 0.05 0.15 0.28 0.36 0.48 0.60 0.70 0.85 0.93
Philippines 0.05 0.12 0.21 0.34 0.52 0.61 0.75 0.85 0.95
Thailand 0.10 0.22 0.30 0.38 0.46 0.56 0.62 0.71 0.86
33
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 8
Brazil 0.12 0.19 0.25 0.32 0.41 0.55 0.65 0.76 0.89
India 0.10 0.24 0.32 0.39 0.48 0.56 0.64 0.73 0.84
Mexico 0.18 0.24 0.32 0.41 0.52 0.60 0.65 0.72 0.84
Russia 0.21 0.32 0.38 0.42 0.47 0.51 0.56 0.62 0.78
Chile 0.13 0.20 0.25 0.36 0.46 0.52 0.67 0.75 0.88
Singapore 0.12 0.21 0.30 0.38 0.44 0.56 0.63 0.68 0.82
South Africa 0.06 0.16 0.28 0.38 0.51 0.61 0.70 0.82 0.92
Turkey 0.08 0.16 0.22 0.33 0.44 0.56 0.64 0.75 0.90
Colombia 0.12 0.24 0.32 0.41 0.42 0.50 0.62 0.71 0.84
Malaysia 0.17 0.30 0.42 0.47 0.48 0.48 0.53 0.62 0.78
Indonesia 0.07 0.13 0.24 0.35 0.47 0.61 0.73 0.87 0.95
Israel 0.08 0.21 0.33 0.41 0.51 0.63 0.71 0.80 0.88
Philippines 0.09 0.17 0.28 0.41 0.51 0.61 0.69 0.81 0.92
Thailand 0.07 0.22 0.33 0.41 0.50 0.58 0.67 0.78 0.91
Econ 9
Brazil 0.14 0.19 0.25 0.33 0.44 0.58 0.64 0.73 0.85
India 0.11 0.22 0.31 0.39 0.47 0.56 0.67 0.76 0.87
Mexico 0.16 0.25 0.32 0.38 0.50 0.59 0.66 0.73 0.86
Russia 0.21 0.27 0.35 0.39 0.44 0.46 0.52 0.63 0.77
Chile 0.10 0.16 0.23 0.30 0.41 0.54 0.66 0.78 0.90
Singapore 0.07 0.14 0.22 0.30 0.43 0.51 0.62 0.72 0.87
South Africa 0.10 0.18 0.27 0.40 0.53 0.61 0.70 0.80 0.91
Turkey 0.10 0.17 0.21 0.32 0.38 0.47 0.57 0.66 0.80
Colombia 0.13 0.26 0.34 0.42 0.44 0.52 0.59 0.68 0.84
Malaysia 0.17 0.27 0.41 0.44 0.47 0.47 0.56 0.69 0.81
Indonesia 0.12 0.19 0.30 0.40 0.49 0.64 0.75 0.84 0.95
Israel 0.08 0.22 0.35 0.41 0.48 0.61 0.68 0.78 0.86
Philippines 0.08 0.13 0.23 0.29 0.41 0.52 0.64 0.77 0.90
Thailand 0.08 0.21 0.28 0.36 0.48 0.55 0.64 0.76 0.88
34
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Random Walk
Brazil 0.27 0.57 0.70 0.79 0.82 0.86 0.91 0.98 0.99
India 0.28 0.56 0.70 0.77 0.84 0.88 0.92 0.95 0.98
Mexico 0.28 0.62 0.73 0.80 0.88 0.93 0.95 0.96 0.98
Russia 0.32 0.59 0.73 0.81 0.88 0.91 0.93 0.95 0.96
Chile 0.32 0.53 0.69 0.79 0.85 0.89 0.95 0.96 0.98
Singapore 0.37 0.61 0.74 0.81 0.84 0.90 0.93 0.96 0.99
South Africa 0.32 0.57 0.72 0.76 0.86 0.89 0.93 0.96 0.98
Turkey 0.11 0.64 0.87 0.90 0.93 0.95 0.96 0.98 0.98
Colombia 0.35 0.54 0.66 0.77 0.84 0.87 0.92 0.96 0.99
Malaysia 0.39 0.53 0.69 0.79 0.88 0.90 0.94 0.96 0.98
Indonesia 0.24 0.56 0.76 0.87 0.90 0.92 0.96 0.98 0.98
Israel 0.42 0.62 0.76 0.82 0.85 0.90 0.92 0.98 0.98
Philippines 0.36 0.59 0.69 0.76 0.84 0.87 0.91 0.94 0.96
Thailand 0.42 0.62 0.71 0.78 0.81 0.84 0.92 0.95 0.98
35
Table A.2: Local Forecast coverage rate for selected
quantiles - Three-month horizon
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Option
Brazil 0.10 0.19 0.30 0.40 0.53 0.59 0.65 0.76 0.89
India 0.07 0.22 0.33 0.43 0.56 0.65 0.72 0.81 0.87
Mexico 0.09 0.24 0.33 0.43 0.49 0.57 0.67 0.78 0.88
Russia 0.07 0.20 0.34 0.40 0.53 0.59 0.66 0.75 0.88
Chile 0.09 0.21 0.31 0.44 0.52 0.61 0.67 0.77 0.87
Singapore 0.10 0.20 0.31 0.41 0.56 0.59 0.64 0.73 0.85
South Africa 0.12 0.18 0.27 0.33 0.47 0.57 0.68 0.77 0.91
Turkey 0.12 0.20 0.31 0.41 0.46 0.57 0.67 0.76 0.89
Colombia 0.10 0.19 0.28 0.40 0.50 0.63 0.69 0.77 0.88
Malaysia 0.09 0.20 0.30 0.40 0.51 0.56 0.64 0.77 0.88
Indonesia 0.09 0.20 0.25 0.41 0.49 0.61 0.70 0.83 0.91
Israel 0.08 0.22 0.35 0.46 0.54 0.60 0.70 0.78 0.89
Philippines 0.08 0.17 0.30 0.38 0.47 0.57 0.67 0.78 0.90
Thailand 0.09 0.23 0.33 0.42 0.47 0.61 0.67 0.77 0.85
Econ 1
Brazil 0.12 0.15 0.22 0.30 0.41 0.48 0.59 0.69 0.85
India 0.07 0.17 0.25 0.36 0.51 0.61 0.74 0.84 0.92
Mexico 0.09 0.15 0.20 0.30 0.42 0.48 0.54 0.67 0.74
Russia 0.16 0.26 0.34 0.42 0.46 0.49 0.56 0.64 0.79
Chile 0.09 0.19 0.25 0.33 0.46 0.59 0.67 0.76 0.88
Singapore 0.08 0.12 0.22 0.35 0.46 0.60 0.68 0.77 0.88
South Africa 0.07 0.15 0.24 0.35 0.46 0.59 0.69 0.78 0.88
Turkey 0.06 0.09 0.20 0.27 0.40 0.51 0.59 0.73 0.87
Colombia 0.09 0.16 0.25 0.30 0.38 0.48 0.59 0.75 0.88
Malaysia 0.11 0.21 0.33 0.45 0.51 0.54 0.56 0.65 0.75
Indonesia 0.14 0.25 0.33 0.44 0.51 0.57 0.65 0.75 0.88
Israel 0.10 0.19 0.40 0.54 0.63 0.69 0.79 0.85 0.94
Philippines 0.07 0.14 0.23 0.38 0.51 0.67 0.85 0.91 0.98
Thailand 0.08 0.16 0.31 0.41 0.51 0.62 0.74 0.86 0.92
36
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 2
Brazil 0.08 0.14 0.22 0.33 0.42 0.50 0.63 0.72 0.88
India 0.12 0.20 0.27 0.33 0.50 0.59 0.66 0.76 0.83
Mexico 0.18 0.25 0.34 0.41 0.48 0.54 0.64 0.70 0.80
Russia 0.20 0.28 0.36 0.42 0.48 0.51 0.54 0.60 0.70
Chile 0.06 0.19 0.23 0.30 0.43 0.58 0.68 0.78 0.88
Singapore 0.07 0.15 0.25 0.35 0.45 0.54 0.60 0.71 0.81
South Africa 0.07 0.17 0.28 0.38 0.48 0.59 0.69 0.80 0.91
Turkey 0.06 0.12 0.21 0.28 0.37 0.50 0.59 0.70 0.86
Colombia 0.09 0.17 0.27 0.30 0.36 0.48 0.61 0.72 0.85
Malaysia 0.14 0.29 0.44 0.51 0.52 0.52 0.54 0.60 0.77
Indonesia 0.08 0.18 0.30 0.41 0.50 0.60 0.72 0.82 0.93
Israel 0.09 0.17 0.32 0.47 0.57 0.65 0.74 0.80 0.90
Philippines 0.04 0.13 0.22 0.36 0.49 0.64 0.75 0.87 0.95
Thailand 0.07 0.19 0.28 0.37 0.47 0.57 0.67 0.82 0.90
Econ 3
Brazil 0.11 0.17 0.26 0.33 0.45 0.51 0.64 0.72 0.85
India 0.11 0.20 0.26 0.33 0.46 0.56 0.65 0.76 0.86
Mexico 0.16 0.22 0.35 0.41 0.47 0.56 0.64 0.70 0.81
Russia 0.23 0.30 0.35 0.41 0.44 0.49 0.54 0.62 0.78
Chile 0.07 0.14 0.19 0.30 0.40 0.54 0.69 0.77 0.90
Singapore 0.10 0.14 0.22 0.30 0.41 0.51 0.60 0.70 0.81
South Africa 0.09 0.20 0.29 0.40 0.54 0.63 0.72 0.82 0.91
Turkey 0.07 0.12 0.19 0.25 0.31 0.40 0.50 0.62 0.79
Colombia 0.10 0.19 0.27 0.31 0.36 0.47 0.62 0.72 0.85
Malaysia 0.18 0.33 0.44 0.46 0.50 0.52 0.56 0.65 0.80
Indonesia 0.12 0.22 0.33 0.43 0.50 0.60 0.70 0.80 0.91
Israel 0.09 0.17 0.23 0.36 0.48 0.58 0.69 0.80 0.88
Philippines 0.03 0.07 0.15 0.28 0.35 0.51 0.70 0.79 0.91
Thailand 0.08 0.16 0.28 0.35 0.44 0.49 0.60 0.73 0.84
37
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 4
Brazil 0.10 0.17 0.23 0.30 0.40 0.51 0.62 0.69 0.85
India 0.07 0.15 0.23 0.37 0.50 0.59 0.75 0.83 0.90
Mexico 0.07 0.14 0.20 0.27 0.41 0.47 0.54 0.63 0.72
Russia 0.18 0.25 0.34 0.40 0.45 0.51 0.58 0.62 0.77
Chile 0.08 0.17 0.22 0.28 0.41 0.51 0.67 0.77 0.88
Singapore 0.09 0.12 0.20 0.32 0.43 0.54 0.65 0.77 0.86
South Africa 0.10 0.20 0.27 0.43 0.54 0.63 0.69 0.81 0.91
Turkey 0.07 0.09 0.15 0.22 0.30 0.38 0.48 0.60 0.75
Colombia 0.09 0.18 0.27 0.33 0.40 0.49 0.61 0.73 0.85
Malaysia 0.14 0.27 0.38 0.42 0.47 0.53 0.56 0.65 0.77
Indonesia 0.14 0.17 0.30 0.40 0.45 0.53 0.60 0.74 0.88
Israel 0.08 0.19 0.33 0.45 0.55 0.65 0.73 0.83 0.94
Philippines 0.08 0.15 0.28 0.36 0.46 0.60 0.72 0.86 0.95
Thailand 0.07 0.17 0.30 0.42 0.50 0.62 0.69 0.79 0.90
Econ 5
Brazil 0.07 0.12 0.19 0.27 0.38 0.48 0.59 0.70 0.86
India 0.06 0.15 0.24 0.36 0.49 0.62 0.75 0.86 0.94
Mexico 0.09 0.13 0.20 0.29 0.40 0.48 0.56 0.65 0.80
Russia 0.15 0.27 0.32 0.41 0.48 0.51 0.57 0.67 0.82
Chile 0.10 0.17 0.25 0.33 0.46 0.59 0.67 0.77 0.86
Singapore 0.06 0.15 0.22 0.38 0.48 0.59 0.69 0.78 0.90
South Africa 0.07 0.13 0.23 0.33 0.47 0.56 0.69 0.78 0.89
Turkey 0.04 0.10 0.18 0.28 0.40 0.47 0.61 0.71 0.91
Colombia 0.06 0.15 0.26 0.32 0.36 0.48 0.60 0.77 0.89
Malaysia 0.10 0.20 0.33 0.46 0.51 0.53 0.56 0.64 0.77
Indonesia 0.11 0.24 0.31 0.40 0.49 0.57 0.66 0.76 0.89
Israel 0.08 0.20 0.38 0.54 0.63 0.72 0.80 0.88 0.94
Philippines 0.02 0.10 0.20 0.38 0.47 0.62 0.81 0.91 0.99
Thailand 0.05 0.17 0.30 0.40 0.53 0.67 0.74 0.83 0.92
38
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 6
Brazil 0.08 0.12 0.21 0.29 0.40 0.49 0.62 0.76 0.86
India 0.10 0.17 0.25 0.34 0.43 0.53 0.63 0.76 0.85
Mexico 0.16 0.29 0.35 0.41 0.50 0.56 0.65 0.71 0.82
Russia 0.18 0.26 0.35 0.41 0.48 0.54 0.56 0.61 0.76
Chile 0.07 0.17 0.23 0.30 0.40 0.56 0.65 0.77 0.86
Singapore 0.06 0.17 0.25 0.36 0.44 0.54 0.59 0.69 0.84
South Africa 0.06 0.14 0.27 0.36 0.46 0.61 0.70 0.80 0.92
Turkey 0.06 0.10 0.22 0.31 0.36 0.49 0.63 0.73 0.89
Colombia 0.08 0.18 0.28 0.32 0.38 0.49 0.62 0.74 0.87
Malaysia 0.14 0.25 0.41 0.49 0.51 0.52 0.54 0.64 0.77
Indonesia 0.06 0.17 0.26 0.38 0.50 0.64 0.73 0.83 0.94
Israel 0.05 0.16 0.32 0.48 0.52 0.64 0.72 0.83 0.90
Philippines 0.03 0.12 0.19 0.36 0.47 0.61 0.73 0.88 0.96
Thailand 0.03 0.16 0.28 0.35 0.45 0.56 0.70 0.80 0.91
Econ 7
Brazil 0.06 0.12 0.19 0.27 0.38 0.50 0.62 0.71 0.86
India 0.12 0.23 0.30 0.39 0.43 0.53 0.59 0.65 0.77
Mexico 0.14 0.20 0.29 0.36 0.43 0.51 0.60 0.69 0.80
Russia 0.15 0.27 0.33 0.41 0.49 0.49 0.55 0.63 0.79
Chile 0.07 0.17 0.20 0.29 0.38 0.44 0.62 0.76 0.87
Singapore 0.08 0.12 0.20 0.33 0.45 0.52 0.60 0.72 0.80
South Africa 0.06 0.13 0.23 0.36 0.44 0.57 0.67 0.77 0.86
Turkey 0.04 0.11 0.22 0.31 0.44 0.53 0.65 0.75 0.91
Colombia 0.07 0.17 0.25 0.30 0.36 0.45 0.59 0.72 0.86
Malaysia 0.16 0.27 0.33 0.43 0.47 0.52 0.56 0.62 0.73
Indonesia 0.10 0.20 0.31 0.40 0.46 0.58 0.71 0.78 0.90
Israel 0.01 0.12 0.22 0.36 0.49 0.62 0.72 0.84 0.92
Philippines 0.02 0.09 0.15 0.32 0.46 0.62 0.79 0.92 0.98
Thailand 0.12 0.20 0.27 0.35 0.47 0.52 0.60 0.73 0.86
39
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 8
Brazil 0.09 0.12 0.22 0.27 0.39 0.50 0.63 0.74 0.89
India 0.12 0.20 0.25 0.35 0.44 0.55 0.64 0.75 0.84
Mexico 0.16 0.25 0.33 0.38 0.47 0.55 0.64 0.71 0.82
Russia 0.14 0.27 0.33 0.41 0.50 0.53 0.56 0.65 0.77
Chile 0.07 0.17 0.24 0.30 0.41 0.57 0.67 0.77 0.87
Singapore 0.08 0.16 0.25 0.37 0.47 0.55 0.59 0.70 0.83
South Africa 0.06 0.15 0.27 0.36 0.47 0.60 0.70 0.80 0.93
Turkey 0.04 0.10 0.19 0.28 0.38 0.50 0.62 0.75 0.90
Colombia 0.08 0.17 0.28 0.32 0.40 0.49 0.60 0.75 0.88
Malaysia 0.13 0.26 0.43 0.52 0.52 0.52 0.54 0.63 0.78
Indonesia 0.06 0.19 0.26 0.39 0.51 0.64 0.74 0.83 0.94
Israel 0.06 0.17 0.33 0.48 0.57 0.65 0.75 0.82 0.90
Philippines 0.05 0.14 0.23 0.36 0.45 0.60 0.73 0.90 0.92
Thailand 0.04 0.17 0.25 0.36 0.44 0.57 0.69 0.80 0.91
Econ 9
Brazil 0.10 0.16 0.26 0.29 0.43 0.52 0.64 0.75 0.85
India 0.09 0.20 0.26 0.33 0.41 0.56 0.65 0.77 0.88
Mexico 0.15 0.25 0.32 0.41 0.46 0.55 0.64 0.72 0.86
Russia 0.16 0.26 0.31 0.38 0.45 0.50 0.57 0.64 0.78
Chile 0.07 0.14 0.22 0.28 0.37 0.47 0.69 0.77 0.89
Singapore 0.09 0.14 0.19 0.31 0.38 0.49 0.59 0.70 0.79
South Africa 0.10 0.19 0.28 0.38 0.50 0.64 0.72 0.80 0.91
Turkey 0.06 0.12 0.17 0.23 0.29 0.37 0.45 0.62 0.79
Colombia 0.09 0.19 0.28 0.33 0.35 0.46 0.60 0.75 0.85
Malaysia 0.16 0.31 0.44 0.46 0.50 0.52 0.57 0.65 0.80
Indonesia 0.11 0.21 0.29 0.42 0.48 0.63 0.72 0.81 0.93
Israel 0.05 0.15 0.24 0.36 0.52 0.62 0.70 0.80 0.90
Philippines 0.03 0.07 0.15 0.24 0.38 0.46 0.62 0.83 0.92
Thailand 0.07 0.19 0.27 0.35 0.40 0.49 0.63 0.72 0.88
40
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Random Walk
Brazil 0.28 0.57 0.66 0.75 0.82 0.88 0.91 0.94 0.97
India 0.33 0.52 0.65 0.76 0.81 0.87 0.90 0.93 0.96
Mexico 0.34 0.55 0.68 0.80 0.82 0.88 0.94 0.96 0.98
Russia 0.30 0.59 0.75 0.83 0.88 0.90 0.92 0.94 0.96
Chile 0.30 0.55 0.65 0.78 0.84 0.88 0.93 0.96 0.98
Singapore 0.42 0.60 0.69 0.78 0.83 0.88 0.93 0.96 0.98
South Africa 0.30 0.57 0.69 0.79 0.84 0.89 0.94 0.96 0.98
Turkey 0.09 0.63 0.81 0.86 0.91 0.93 0.94 0.96 0.98
Colombia 0.30 0.49 0.67 0.75 0.84 0.89 0.92 0.95 0.97
Malaysia 0.39 0.58 0.70 0.78 0.86 0.90 0.93 0.96 0.98
Indonesia 0.30 0.55 0.71 0.82 0.88 0.93 0.94 0.96 0.97
Israel 0.42 0.62 0.75 0.80 0.85 0.90 0.93 0.94 0.97
Philippines 0.36 0.52 0.67 0.76 0.83 0.88 0.93 0.94 0.98
Thailand 0.40 0.56 0.66 0.77 0.83 0.86 0.91 0.96 0.99
41
Table A.3: Kupiec test for selected quantiles - One-month
horizon
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Option
Brazil 0.90 0.85 0.26 0.52 0.39 0.43 0.35 0.44 0.38
India 0.22 0.11 0.80 0.63 0.59 1.00 0.67 0.18 0.17
Mexico 0.69 0.69 0.44 0.42 0.70 0.87 0.93 0.70 0.26
Russia 0.69 0.34 0.67 0.63 0.59 0.87 0.55 0.25 0.53
Chile 0.90 0.44 0.67 0.42 0.59 0.27 0.11 0.13 0.53
Singapore 0.90 0.25 0.55 0.87 0.48 0.87 0.45 0.13 0.53
South Africa 0.38 0.70 0.67 0.34 0.39 0.63 0.55 0.85 0.70
Turkey 0.90 1.00 0.55 1.00 0.48 0.43 0.45 0.56 0.90
Colombia 0.90 0.85 0.93 0.52 0.24 0.06 0.02 0.34 0.70
Malaysia 0.90 0.44 0.93 0.75 0.31 0.16 0.15 0.13 0.51
Indonesia 0.90 0.11 0.07 0.08 0.24 0.53 0.45 0.55 0.51
Israel 0.90 0.56 0.35 0.75 0.82 0.53 0.28 0.13 0.17
Philippines 0.90 0.69 0.93 0.52 0.70 1.00 0.45 0.06 0.38
Thailand 0.69 0.44 0.55 0.87 0.59 0.87 0.80 0.18 0.04
Econ 1
Brazil 0.69 1.00 0.44 0.02 0.10 0.27 0.21 0.25 0.04
India 0.38 0.43 0.55 0.63 0.70 0.52 0.67 0.85 0.70
Mexico 0.51 0.32 0.67 0.34 0.10 0.06 0.15 0.02 0.04
Russia 0.00 0.09 0.21 0.63 0.07 0.00 0.00 0.00 0.00
Chile 0.38 0.85 0.67 0.75 0.59 0.27 0.35 0.34 0.26
Singapore 0.90 0.43 0.67 0.75 0.39 0.08 0.15 0.09 0.17
South Africa 0.51 0.07 0.20 0.63 0.82 1.00 0.80 0.85 0.90
Turkey 0.51 0.07 0.10 0.04 0.05 0.01 0.01 0.06 0.90
Colombia 0.38 0.85 0.80 1.00 0.05 0.00 0.06 0.02 0.07
Malaysia 0.26 0.09 0.06 0.63 0.59 0.03 0.00 0.00 0.00
Indonesia 0.38 0.55 0.26 0.15 0.48 0.75 0.93 0.85 0.53
Israel 0.22 0.69 0.45 0.16 0.31 0.05 0.07 0.04 0.02
Philippines 0.90 0.04 0.05 0.20 0.59 0.34 0.10 0.02 0.02
Thailand 0.38 0.44 0.45 1.00 0.59 0.75 0.93 0.55 0.22
42
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 2
Brazil 0.69 0.32 0.10 0.02 0.05 0.43 0.08 0.13 0.26
India 0.00 0.02 0.15 0.87 0.82 0.75 0.28 0.02 0.01
Mexico 0.02 0.09 0.35 0.75 0.59 0.87 0.67 0.09 0.02
Russia 0.00 0.01 0.11 1.00 0.31 0.00 0.00 0.00 0.00
Chile 0.53 0.69 0.44 0.20 0.39 0.27 0.21 0.25 0.38
Singapore 0.70 0.69 0.67 0.26 0.48 0.06 0.06 0.00 0.01
South Africa 0.51 0.43 0.34 0.63 0.94 1.00 0.80 0.55 0.69
Turkey 0.35 0.23 0.10 0.08 0.00 0.01 0.02 0.02 0.69
Colombia 0.04 0.13 0.35 0.75 0.07 0.02 0.02 0.02 0.01
Malaysia 0.00 0.00 0.00 0.06 0.59 0.00 0.00 0.00 0.00
Indonesia 0.07 0.02 0.14 0.34 0.82 0.52 0.44 0.16 0.51
Israel 0.90 0.85 0.67 0.53 0.94 0.42 0.67 1.00 0.90
Philippines 0.70 0.55 0.80 0.87 0.82 0.87 0.34 0.55 0.69
Thailand 0.70 0.13 0.21 0.53 0.82 0.75 0.28 0.70 0.90
Econ 3
Brazil 0.26 0.85 0.67 0.15 0.31 0.87 0.35 0.44 0.17
India 0.02 0.06 0.28 0.87 0.59 0.87 0.80 0.09 0.17
Mexico 0.17 0.06 0.15 0.34 0.31 1.00 0.55 0.13 0.07
Russia 0.00 0.02 0.15 0.52 0.07 0.00 0.00 0.00 0.00
Chile 0.38 0.23 0.03 0.02 0.01 0.08 0.35 0.44 0.26
Singapore 0.13 0.04 0.03 0.01 0.07 0.01 0.01 0.01 0.07
South Africa 0.90 0.85 0.80 1.00 0.48 0.87 0.80 0.43 0.90
Turkey 0.70 0.55 0.14 0.15 0.00 0.03 0.02 0.00 0.38
Colombia 0.04 0.13 0.28 0.87 0.19 0.02 0.01 0.00 0.01
Malaysia 0.00 0.00 0.01 0.27 0.48 0.00 0.00 0.00 0.00
Indonesia 0.07 1.00 0.80 0.75 0.70 0.08 0.20 0.02 0.07
Israel 0.51 0.56 0.28 0.34 0.94 0.34 0.93 0.25 0.26
Philippines 0.90 0.11 0.10 0.05 0.05 0.06 0.35 0.85 0.17
Thailand 0.53 0.13 0.28 1.00 0.70 0.43 0.11 0.09 0.26
43
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 4
Brazil 0.38 0.70 0.26 0.08 0.31 0.43 0.28 0.70 0.11
India 0.38 0.43 0.14 0.26 0.82 0.42 0.55 1.00 0.53
Mexico 0.69 0.11 0.14 0.05 0.05 0.04 0.02 0.04 0.04
Russia 0.00 0.06 0.21 0.87 0.19 0.02 0.00 0.00 0.00
Chile 0.53 0.32 0.14 0.08 0.05 0.01 0.55 0.56 0.70
Singapore 0.13 0.11 0.01 0.02 0.07 0.04 0.11 0.04 0.26
South Africa 0.90 0.69 0.67 0.75 0.94 1.00 0.80 1.00 0.70
Turkey 0.70 0.11 0.20 0.15 0.07 0.03 0.02 0.00 0.04
Colombia 0.17 0.56 0.80 0.75 0.05 0.02 0.04 0.09 0.02
Malaysia 0.53 0.02 0.06 0.63 0.14 0.02 0.00 0.01 0.00
Indonesia 0.26 1.00 0.44 0.63 0.39 0.87 0.67 0.55 0.69
Israel 0.13 1.00 0.21 0.11 0.39 0.11 0.34 0.07 0.13
Philippines 0.35 0.11 0.26 0.34 0.82 1.00 0.67 0.07 0.02
Thailand 0.51 0.85 0.93 0.75 0.59 0.43 0.67 0.43 0.13
Econ 5
Brazil 0.70 0.69 0.20 0.00 0.02 0.08 0.08 0.02 0.26
India 0.35 0.11 0.20 0.63 0.94 0.42 0.93 0.32 0.13
Mexico 0.51 0.32 0.34 0.15 0.10 0.08 0.11 0.02 0.17
Russia 0.00 0.01 0.08 1.00 0.07 0.00 0.00 0.00 0.00
Chile 0.53 0.70 0.26 0.87 0.48 0.21 0.21 0.34 0.26
Singapore 0.90 0.55 0.26 0.26 0.07 0.08 0.21 0.25 0.53
South Africa 0.07 0.16 0.20 0.20 0.82 1.00 0.80 0.70 0.69
Turkey 0.22 0.07 0.00 0.04 0.10 0.43 0.08 0.04 0.69
Colombia 0.70 0.69 0.67 0.87 0.05 0.00 0.11 0.04 0.07
Malaysia 0.26 0.09 0.02 0.63 0.59 0.03 0.00 0.00 0.00
Indonesia 0.38 0.32 0.10 0.05 0.48 0.63 0.35 0.85 0.90
Israel 0.22 0.55 0.67 0.53 0.14 0.15 0.03 0.02 0.02
Philippines 0.03 0.00 0.10 0.20 0.48 0.34 0.14 0.02 0.02
Thailand 0.03 1.00 0.93 0.87 0.94 0.87 0.93 0.55 0.35
44
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 6
Brazil 0.70 0.43 0.14 0.04 0.02 0.34 0.21 0.25 0.38
India 0.90 0.34 0.28 1.00 0.70 0.21 0.11 0.02 0.04
Mexico 0.00 0.18 0.55 0.87 0.94 0.63 0.28 0.04 0.01
Russia 0.00 0.00 0.00 0.43 0.31 0.01 0.00 0.00 0.00
Chile 0.38 0.56 0.20 0.63 0.31 0.11 0.15 0.09 0.53
Singapore 0.70 1.00 0.34 0.26 0.19 0.08 0.01 0.01 0.01
South Africa 0.13 0.43 0.44 0.42 0.82 0.75 0.45 0.69 0.35
Turkey 0.69 0.23 0.03 0.08 0.14 0.11 0.11 0.09 0.70
Colombia 0.26 0.34 0.45 0.75 0.10 0.04 0.04 0.06 0.01
Malaysia 0.00 0.01 0.00 0.03 0.82 0.00 0.00 0.00 0.00
Indonesia 0.22 0.04 0.10 0.20 0.39 0.75 0.34 0.04 0.13
Israel 0.22 1.00 0.80 0.75 0.59 0.52 0.93 0.85 0.70
Philippines 0.22 0.07 0.80 0.53 0.82 0.53 0.93 0.32 0.51
Thailand 0.13 0.25 0.67 0.75 0.94 0.75 0.45 0.70 0.69
Econ 7
Brazil 0.22 0.43 0.20 0.02 0.05 0.16 0.06 0.02 0.26
India 0.11 0.09 0.04 0.43 0.70 0.06 0.01 0.00 0.00
Mexico 0.07 0.44 0.80 0.42 0.39 0.21 0.15 0.01 0.04
Russia 0.00 0.01 0.06 0.87 0.05 0.00 0.00 0.00 0.00
Chile 0.53 0.85 0.14 0.15 0.14 0.03 0.11 0.13 0.17
Singapore 0.70 0.70 0.26 0.04 0.05 0.03 0.00 0.00 0.01
South Africa 0.22 0.11 0.20 0.20 0.48 0.87 0.67 0.44 0.38
Turkey 0.69 0.11 0.01 0.11 0.39 0.63 0.08 0.18 0.69
Colombia 0.90 0.69 0.67 0.75 0.04 0.00 0.02 0.04 0.04
Malaysia 0.00 0.00 0.04 0.75 0.31 0.02 0.00 0.00 0.00
Indonesia 0.69 0.69 0.14 0.34 0.70 0.63 0.67 0.70 0.38
Israel 0.02 0.11 0.67 0.34 0.59 1.00 0.93 0.11 0.22
Philippines 0.02 0.00 0.01 0.11 0.59 0.75 0.14 0.07 0.02
Thailand 0.90 0.44 0.93 0.63 0.31 0.34 0.02 0.01 0.11
45
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 8
Brazil 0.38 0.85 0.14 0.04 0.02 0.21 0.21 0.25 0.70
India 0.90 0.25 0.55 0.87 0.70 0.34 0.08 0.04 0.01
Mexico 0.00 0.18 0.55 0.75 0.59 1.00 0.21 0.01 0.02
Russia 0.00 0.00 0.02 0.53 0.39 0.02 0.00 0.00 0.00
Chile 0.26 1.00 0.20 0.34 0.31 0.04 0.35 0.13 0.53
Singapore 0.53 0.85 0.93 0.52 0.14 0.27 0.06 0.00 0.00
South Africa 0.07 0.23 0.55 0.63 0.82 0.75 0.93 0.43 0.51
Turkey 0.51 0.23 0.02 0.08 0.14 0.34 0.08 0.09 0.90
Colombia 0.38 0.25 0.55 0.87 0.05 0.01 0.02 0.01 0.02
Malaysia 0.01 0.00 0.00 0.06 0.59 0.00 0.00 0.00 0.00
Indonesia 0.22 0.02 0.07 0.15 0.48 0.87 0.34 0.01 0.03
Israel 0.51 0.85 0.35 0.87 0.82 0.42 0.80 1.00 0.53
Philippines 0.69 0.32 0.67 0.75 0.82 0.87 0.80 0.69 0.51
Thailand 0.22 0.44 0.45 0.87 0.94 0.63 0.45 0.56 0.69
Econ 9
Brazil 0.11 0.85 0.20 0.05 0.14 0.53 0.11 0.02 0.07
India 0.70 0.44 0.80 0.75 0.48 0.34 0.35 0.18 0.26
Mexico 0.02 0.13 0.55 0.63 0.94 0.87 0.28 0.04 0.11
Russia 0.00 0.02 0.21 0.75 0.10 0.00 0.00 0.00 0.00
Chile 0.90 0.16 0.05 0.01 0.02 0.11 0.28 0.44 0.90
Singapore 0.13 0.04 0.03 0.01 0.07 0.02 0.02 0.02 0.17
South Africa 0.90 0.43 0.44 1.00 0.39 0.87 0.93 1.00 0.69
Turkey 0.90 0.32 0.01 0.02 0.00 0.00 0.00 0.00 0.00
Colombia 0.26 0.06 0.28 0.63 0.10 0.04 0.00 0.00 0.01
Malaysia 0.01 0.02 0.00 0.27 0.39 0.00 0.00 0.00 0.00
Indonesia 0.38 0.85 0.93 1.00 0.82 0.34 0.20 0.23 0.03
Israel 0.51 0.44 0.21 0.75 0.70 0.75 0.67 0.44 0.11
Philippines 0.51 0.02 0.05 0.00 0.02 0.03 0.08 0.34 0.90
Thailand 0.51 0.85 0.67 0.34 0.59 0.16 0.08 0.18 0.38
46
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Random Walk
Brazil 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
India 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Mexico 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Russia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01
Chile 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Singapore 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
South Africa 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Turkey 0.70 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Colombia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Malaysia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Indonesia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Israel 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Philippines 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Thailand 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
47
Table A.4: Kupiec test for selected quantiles - Three-
month horizon
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Option
Brazil 0.84 0.78 0.92 0.97 0.43 0.72 0.21 0.21 0.64
India 0.25 0.49 0.45 0.50 0.12 0.21 0.65 0.78 0.23
Mexico 0.56 0.21 0.36 0.50 0.75 0.50 0.36 0.49 0.47
Russia 0.25 0.91 0.28 0.97 0.43 0.85 0.28 0.15 0.34
Chile 0.75 0.75 0.81 0.25 0.64 0.77 0.36 0.37 0.23
Singapore 0.96 0.94 0.68 0.72 0.12 0.85 0.08 0.04 0.05
South Africa 0.47 0.50 0.43 0.08 0.43 0.50 0.56 0.28 0.75
Turkey 0.47 0.91 0.81 0.72 0.35 0.50 0.45 0.21 0.64
Colombia 0.84 0.63 0.65 0.90 1.00 0.44 0.81 0.37 0.34
Malaysia 0.75 0.94 0.92 0.97 0.88 0.32 0.11 0.37 0.47
Indonesia 0.56 0.94 0.19 0.72 0.88 0.77 0.92 0.38 0.75
Israel 0.39 0.49 0.21 0.14 0.35 0.97 0.95 0.49 0.64
Philippines 0.39 0.38 0.95 0.65 0.43 0.41 0.36 0.49 0.84
Thailand 0.56 0.37 0.45 0.61 0.43 0.77 0.45 0.28 0.05
Econ 1
Brazil 0.47 0.13 0.02 0.01 0.02 0.00 0.00 0.00 0.03
India 0.25 0.28 0.13 0.35 0.88 0.77 0.25 0.20 0.39
Mexico 0.75 0.09 0.01 0.01 0.04 0.00 0.00 0.00 0.00
Russia 0.02 0.07 0.28 0.61 0.35 0.00 0.00 0.00 0.00
Chile 0.75 0.78 0.19 0.08 0.35 0.85 0.45 0.21 0.47
Singapore 0.39 0.01 0.03 0.21 0.35 0.90 0.56 0.28 0.47
South Africa 0.25 0.13 0.09 0.15 0.35 0.72 0.68 0.49 0.47
Turkey 0.08 0.00 0.01 0.00 0.01 0.02 0.00 0.03 0.23
Colombia 0.75 0.20 0.19 0.01 0.00 0.00 0.00 0.10 0.34
Malaysia 0.64 0.75 0.36 0.19 0.88 0.10 0.00 0.00 0.00
Indonesia 0.15 0.10 0.45 0.32 0.88 0.50 0.21 0.10 0.34
Israel 0.96 0.78 0.01 0.00 0.00 0.02 0.01 0.13 0.08
Philippines 0.25 0.05 0.04 0.65 0.88 0.08 0.00 0.00 0.00
Thailand 0.39 0.20 0.68 0.72 0.75 0.54 0.25 0.05 0.39
48
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 2
Brazil 0.08 0.14 0.22 0.33 0.42 0.50 0.63 0.72 0.88
Brazil 0.39 0.03 0.02 0.06 0.04 0.01 0.06 0.01 0.47
India 0.47 0.91 0.33 0.08 1.00 0.72 0.28 0.21 0.01
Mexico 0.00 0.10 0.28 0.72 0.53 0.14 0.08 0.00 0.00
Russia 0.00 0.01 0.08 0.61 0.64 0.02 0.00 0.00 0.00
Chile 0.08 0.63 0.04 0.01 0.08 0.61 0.56 0.61 0.47
Singapore 0.25 0.13 0.19 0.15 0.21 0.14 0.01 0.01 0.00
South Africa 0.25 0.28 0.53 0.54 0.53 0.72 0.81 0.91 0.56
Turkey 0.08 0.01 0.01 0.00 0.00 0.01 0.00 0.00 0.09
Colombia 0.75 0.28 0.33 0.01 0.00 0.00 0.02 0.01 0.05
Malaysia 0.09 0.01 0.00 0.00 0.64 0.04 0.00 0.00 0.00
Indonesia 0.39 0.50 0.92 0.85 1.00 0.97 0.53 0.50 0.25
Israel 0.75 0.38 0.56 0.07 0.08 0.21 0.25 0.94 0.84
Philippines 0.01 0.02 0.02 0.27 0.75 0.27 0.19 0.02 0.02
Thailand 0.15 0.63 0.53 0.44 0.43 0.50 0.36 0.50 0.84
Econ 3
Brazil 0.64 0.38 0.25 0.08 0.21 0.02 0.11 0.02 0.05
India 0.64 0.91 0.25 0.06 0.27 0.25 0.21 0.21 0.15
Mexico 0.02 0.49 0.21 0.85 0.43 0.32 0.08 0.00 0.00
Russia 0.00 0.00 0.16 0.85 0.16 0.00 0.00 0.00 0.00
Chile 0.25 0.05 0.00 0.01 0.01 0.14 0.68 0.37 0.84
Singapore 0.96 0.05 0.03 0.01 0.02 0.02 0.01 0.00 0.00
South Africa 0.75 0.94 0.78 0.90 0.35 0.44 0.65 0.50 0.56
Turkey 0.25 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Colombia 0.84 0.63 0.43 0.02 0.00 0.00 0.02 0.02 0.03
Malaysia 0.00 0.00 0.00 0.10 1.00 0.04 0.00 0.00 0.00
Indonesia 0.34 0.61 0.36 0.50 1.00 0.97 0.95 0.91 0.56
Israel 0.56 0.28 0.04 0.27 0.53 0.61 0.68 0.91 0.34
Philippines 0.00 0.00 0.00 0.00 0.00 0.02 0.95 0.75 0.56
Thailand 0.39 0.20 0.53 0.15 0.12 0.00 0.01 0.04 0.02
49
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 4
Brazil 0.96 0.28 0.06 0.01 0.01 0.02 0.04 0.00 0.03
India 0.15 0.13 0.04 0.44 1.00 0.85 0.13 0.28 0.96
Mexico 0.15 0.03 0.01 0.00 0.02 0.00 0.00 0.00 0.00
Russia 0.00 0.15 0.28 0.97 0.21 0.02 0.00 0.00 0.00
Chile 0.39 0.28 0.02 0.00 0.02 0.02 0.45 0.37 0.47
Singapore 0.75 0.01 0.00 0.04 0.06 0.14 0.21 0.37 0.09
South Africa 0.96 0.94 0.33 0.41 0.27 0.44 0.68 0.63 0.75
Turkey 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Colombia 0.75 0.50 0.43 0.08 0.01 0.01 0.02 0.04 0.03
Malaysia 0.15 0.03 0.04 0.61 0.43 0.07 0.00 0.00 0.00
Indonesia 0.09 0.38 0.95 0.90 0.21 0.07 0.01 0.07 0.47
Israel 0.39 0.78 0.36 0.19 0.21 0.15 0.33 0.28 0.08
Philippines 0.39 0.09 0.65 0.27 0.27 0.90 0.65 0.05 0.02
Thailand 0.15 0.28 0.95 0.61 1.00 0.65 0.81 0.75 0.84
Econ 5
Brazil 0.15 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.15
India 0.08 0.13 0.09 0.35 0.75 0.65 0.19 0.05 0.08
Mexico 0.56 0.02 0.00 0.00 0.01 0.00 0.00 0.00 0.00
Russia 0.05 0.04 0.56 0.85 0.53 0.02 0.00 0.00 0.00
Chile 0.96 0.28 0.19 0.06 0.27 0.72 0.36 0.37 0.09
Singapore 0.08 0.09 0.02 0.54 0.53 0.72 0.68 0.61 0.96
South Africa 0.25 0.02 0.04 0.06 0.43 0.25 0.81 0.49 0.64
Turkey 0.00 0.00 0.00 0.00 0.01 0.00 0.02 0.01 0.56
Colombia 0.08 0.09 0.25 0.04 0.00 0.00 0.01 0.28 0.64
Malaysia 0.84 0.94 0.45 0.14 0.88 0.07 0.00 0.00 0.00
Indonesia 0.64 0.21 0.68 0.97 0.75 0.41 0.28 0.21 0.64
Israel 0.39 0.91 0.02 0.00 0.00 0.00 0.01 0.01 0.08
Philippines 0.00 0.00 0.01 0.54 0.43 0.54 0.00 0.00 0.00
Thailand 0.02 0.38 0.95 0.97 0.43 0.06 0.25 0.38 0.39
50
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 6
Brazil 0.39 0.01 0.01 0.00 0.01 0.01 0.04 0.21 0.15
India 0.96 0.38 0.13 0.11 0.08 0.07 0.06 0.21 0.03
Mexico 0.02 0.01 0.21 0.85 1.00 0.25 0.16 0.01 0.00
Russia 0.00 0.07 0.16 0.72 0.64 0.10 0.00 0.00 0.00
Chile 0.25 0.38 0.06 0.01 0.01 0.25 0.16 0.28 0.15
Singapore 0.08 0.38 0.13 0.27 0.16 0.10 0.00 0.00 0.02
South Africa 0.08 0.05 0.43 0.27 0.35 0.77 0.92 0.94 0.39
Turkey 0.04 0.00 0.02 0.02 0.00 0.01 0.06 0.03 0.64
Colombia 0.39 0.50 0.53 0.04 0.00 0.00 0.02 0.07 0.23
Malaysia 0.15 0.10 0.00 0.02 0.88 0.04 0.00 0.00 0.00
Indonesia 0.08 0.38 0.25 0.65 1.00 0.35 0.33 0.28 0.08
Israel 0.02 0.20 0.56 0.05 0.64 0.27 0.53 0.28 0.96
Philippines 0.00 0.01 0.00 0.35 0.43 0.77 0.43 0.01 0.01
Thailand 0.00 0.20 0.65 0.15 0.21 0.32 0.92 0.91 0.75
Econ 7
Brazil 0.08 0.01 0.00 0.00 0.00 0.01 0.02 0.01 0.15
India 0.34 0.37 0.95 0.77 0.08 0.07 0.00 0.00 0.00
Mexico 0.15 0.91 0.78 0.27 0.08 0.02 0.01 0.00 0.00
Russia 0.05 0.04 0.45 0.72 0.75 0.01 0.00 0.00 0.00
Chile 0.15 0.28 0.01 0.00 0.00 0.00 0.04 0.21 0.23
Singapore 0.39 0.01 0.00 0.08 0.21 0.05 0.01 0.01 0.00
South Africa 0.04 0.02 0.04 0.27 0.12 0.50 0.45 0.28 0.09
Turkey 0.01 0.00 0.02 0.02 0.12 0.07 0.16 0.10 0.56
Colombia 0.25 0.38 0.19 0.01 0.00 0.00 0.00 0.01 0.09
Malaysia 0.02 0.03 0.36 0.50 0.43 0.05 0.00 0.00 0.00
Indonesia 0.84 0.91 0.68 0.97 0.27 0.61 0.78 0.61 0.84
Israel 0.00 0.01 0.02 0.35 0.75 0.65 0.65 0.20 0.39
Philippines 0.00 0.00 0.00 0.04 0.35 0.65 0.01 0.00 0.00
Thailand 0.47 0.94 0.43 0.21 0.43 0.05 0.01 0.04 0.09
51
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Econ 8
Brazil 0.56 0.01 0.02 0.00 0.00 0.01 0.06 0.07 0.64
India 0.47 0.94 0.19 0.15 0.12 0.19 0.08 0.15 0.02
Mexico 0.02 0.15 0.45 0.65 0.43 0.19 0.08 0.01 0.00
Russia 0.15 0.04 0.36 0.72 1.00 0.07 0.00 0.00 0.00
Chile 0.25 0.38 0.09 0.01 0.02 0.41 0.45 0.28 0.23
Singapore 0.39 0.20 0.13 0.44 0.43 0.19 0.00 0.00 0.00
South Africa 0.04 0.09 0.33 0.35 0.43 0.90 0.92 0.94 0.25
Turkey 0.01 0.00 0.00 0.00 0.00 0.01 0.02 0.10 0.96
Colombia 0.39 0.38 0.65 0.04 0.01 0.00 0.01 0.10 0.47
Malaysia 0.23 0.07 0.00 0.00 0.64 0.04 0.00 0.00 0.00
Indonesia 0.04 0.63 0.25 0.77 0.88 0.27 0.25 0.28 0.08
Israel 0.08 0.28 0.45 0.04 0.08 0.15 0.13 0.50 0.96
Philippines 0.02 0.03 0.06 0.35 0.21 0.90 0.33 0.00 0.39
Thailand 0.00 0.28 0.19 0.35 0.12 0.50 0.68 0.94 0.56
Econ 9
Brazil 0.96 0.20 0.25 0.00 0.06 0.04 0.11 0.10 0.05
India 0.75 0.91 0.25 0.06 0.02 0.25 0.21 0.28 0.34
Mexico 0.03 0.10 0.56 0.85 0.27 0.19 0.11 0.02 0.09
Russia 0.02 0.07 0.81 0.65 0.21 0.01 0.00 0.00 0.00
Chile 0.15 0.05 0.02 0.00 0.00 0.00 0.68 0.37 0.64
Singapore 0.75 0.03 0.00 0.02 0.00 0.01 0.00 0.00 0.00
South Africa 0.84 0.78 0.65 0.54 1.00 0.27 0.65 0.91 0.75
Turkey 0.04 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Colombia 0.56 0.63 0.53 0.06 0.00 0.00 0.01 0.10 0.03
Malaysia 0.02 0.00 0.00 0.10 1.00 0.04 0.00 0.00 0.00
Indonesia 0.64 0.75 0.78 0.61 0.53 0.44 0.53 0.78 0.25
Israel 0.02 0.09 0.09 0.27 0.64 0.65 0.95 0.91 0.96
Philippines 0.00 0.00 0.00 0.00 0.00 0.00 0.02 0.38 0.39
Thailand 0.25 0.63 0.43 0.21 0.01 0.00 0.06 0.01 0.47
52
Country 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90
Random Walk
Brazil 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
India 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01
Mexico 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Russia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Chile 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Singapore 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
South Africa 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Turkey 0.56 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Colombia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Malaysia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Indonesia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Israel 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Philippines 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Thailand 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
53

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ISSN 1518-3548

Predictability of Exchange Rate Densities for Emerging

Working Paper Series Brasília no. 588 Janeiro 2024 p. 3-53

Edited by the Research Department (Depep) – E-mail: workingpaper@bcb.gov.br

Editor: Rodrigo Barbone Gonzalez

Co-editor: Eurilton Alves Araujo Jr

Head of the Research Department: André Minella

Deputy Governor for Economic Policy: Diogo Abry Guillen

Citizen Service Division

Banco Central do Brasil

Keywords: Exchange Rate, Density Forecasts, Currency Options.

2.2 Option-Implied Model

Kohlagen model for pricing exchange rate options.

2.3 Economic Models

Table 1: Economic models

Model Covariate vector

2.4 Density forecast evaluation tests

zt+1 ≡ Φ−1 (zt+1 ) ,

To test the null hypothesis that e

\ m,h,r = (1 − τ) is checked via the Kupiec (1995) test. It is a non

Table 6: Berkowitz test results - One-month horizon

Table 7: Berkowitz test results - Three-month horizon

Table 8: Log Density Predictive Score - LDPS - One-month horizon

Table 9: Log Density Predictive Score - LDPS - Three-month horizon

7 For other quantile levels, see Appendix.

Table 15: Kupiec test for median - Three-month horizon

Clements, M. P. (2005). Evaluating econometric forecasts of economic and financial variables.

Fackler, P. and King, R. (1990). Calibration of Option−Based Probability Assessments in Agricultural

Shimko, D. (1993). Bounds of probability. Risk, 6, 33–37.

Figure A.1: Median - One-month horizon

Figure A.2: Standard deviation - One-month horizon

Figure A.4: Median - Three-month horizon

Figure A.6: Skewness - Three-month horizon

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