Abstract
A key puzzle in international macroeconomics is the proposition by Meese and Rogoff (1983) that no model can outperform the random walk in predicting the exchange rate. This paper contributes to this literature by performing an evaluation of exchange rate forecasts of reference models in time and frequency. While the literature has usually addressed the performance of exchange rate models relative to the random walk in time only, this paper studies whether this relative performance is uniform along different frequencies or whether it is driven by certain frequencies. The main finding of this paper is that the predictability of exchange rates varies along the different frequencies. Furthermore, the absence of the high frequency component leads to many cases in which the random walk is outperformed.
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