This paper investigates whether survey-based exchange rate forecasts are useful for forecasting the nominal exchange rates of five Central and Eastern European currencies on a sample spanned by January 2003 and February 2009. The exchange rates are the Czech Koruna, the Hungarian Forint, the Polish Zloty, the Romanian Leu, and the Slovakian Koruna against the Euro. The forecast horizons range from 3 months to 2 years.
First, the author of the paper fits different term-structure models on the survey forecasts. Then, the author compares forecasting performances of the fitted forecasts. The fitted forecasts for the 5 months horizon and beyond are proved to be significantly better than the random walk on the pooled data of the five currencies. In particular, the cut-off horizons of the fitted forecasts vary across currencies:
5 months for the Slovakian Koruna
6 months for the Polish Zloty, and 7 months for the Czech Koruna
13 months for the Romanian Leu, and close to 17 months for the Hungarian Forint
The author concludes that in comparison with the major exchange rates, these cut-off horizons are surprisingly short.