Forecast error among time horizons
The potential forecast error for a particular currency depends on the forecast horizon.
Forecast error over time periods (Exhibit 9.3 next slide)
The forecast error for a given currency changes over time.
Forecast errors among currencies (Exhibit 9.4 second slide)
The ability to forecast currency values may vary with the currency of concern.
Forecast bias
When a forecast error is measured as the forecasted value minus the realized value, negative errors indicate underestimating, while positive errors indicate overestimating. If the forecast errors for a particular currency are consistently positive or negative over time, there is bias in the forecasting procedure