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3.5. TESTING MONETARY MODEL PREDICTIONS 97effect u it+k . A panel combines the time-series observations of severalcross-sectional units. The individuals in the cross section are differentcountries which are indexed by i =1,...,N.Out-of-Sample Fit and PredictionMark and Sul’s primary objective is to use the regression to generateout-of-sample forecasts of the depreciation. They base their methodologyon the work of Meese and Rogoff [104] who sought to evaluate theempirical performance of alternative exchange rate models that werepopular in the 1970s by conducting a monthly postsample Þt analysis.Suppose there are j =1,...J models under consideration. Let x j tbe a vector of exchange rate determinants implied by ‘model j,’ ands t = x 0 jt β j + e j t be regression representation of model j. What Meeseand Rogoff did was to divide the complete size T (time-series) samplein two. Sample 1 consists of observations t =1,...t 1 and sample 2consists of observations t = t 1 +1,...,T,wheret 1