This study investigates the out-of-sample exchange rate predictability with monetary policy rules in Mongolia. The impacts of the monetary policy on the exchange rate and other macroeconomic variables are analyzed for the case of the Mongolian exchange rate. We utilize the out-of-sample forecasting accuracy comparison based on The Taylor rule fundamentals to the random walk model. We find that a monetary policy model with exchange rate predictability unambiguously worsens, but exchange rate targeting outperforms the random walk model. Although, only when we allow the predictability to be varying over period using the Rossi and Sekhposyan fluctuations test.

Table of Contents
Chapter 1 1
Introduction 1
Chapter 2 5
Empirical Model 5
2.1 Monetary Policy Rule 5
2.2 Random walk model 7
2.3 Estimating Predicting Errors 8
Chapter3 11
Describe the data and source 11
Chapter 4 13
Empirical results 13
Chapter 5 17
Conclusions 17
References 19
Appendix 22

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