Can the dollar’s exchange rate be forecast simply by mean reversion?

In the empirical literature on exchange rates, it is often argued that the best representation of exchange rate dynamics is a random walk (the exchange rate differs from the exchange rate of the previous period simply by a hazard, which is a white noise). But this is true in the short term. The literature 1 also suggests that over a longer period of time , there is mean reversion : the variation in the exchange rate over quite a long period of time depends negatively on the initial level of the exchange rate. We look at the pertinence of this approach for the following exchange rates: Dollar/euro; Yen/dollar; Renminbi/dollar. We find a strong restoring (mean reversion) force at long horizons of two years and, even more so, five years. 1 C. Engel, S. Pak Yeung Wu, “Forecasting the U.S. Dollar in the 21st Century”, NBER Working Paper 28447, February 2021.