A dynamic econometric analysis of the dollar-pound exchange rate in an era of structural breaks and policy regime shifts

We employ a newly-developed partial cointegration system allowing for level shifts to examine whether economic fundamentals form the long-run determinants of dollar-pound exchange rate over recent period characterised by structural breaks and policy regime shifts. The paper models both short-run dynamic features using set variables that explicitly reflect quantitative monetary influence forward market. Out-of-sample forecasts comparing model with benchmarks including random walk indicate can help at short horizons but less so longer horizons.