Is a "science" of exchange rates possible?

Economists have many elaborate and beautiful models of currency determination, but they do a terrible job explaining or predicting currency movements over any reasonable interval.  Most of the time you are better off flipping a coin than having a Ph.D. in financial economics.  Why is that?

Roman Frydman and his co-author Michael Goldberg say that is because we expect too much of our models.  In trying to derive very sharp predictions, we exclude important considerations such as those suggested by behavioral economics and by the almost-infinite dimensional uncertainty that market players and forecasters face.  They apply what they call "Imperfect Knowledge Economics" to currency markets and much else in their new book.  Here is a paper-length treatment that takes the Euro as its starting point and tries to say something about where it is headed.  See also the related and very helpful discussion on exchange-rate economics at Econbrowser. 

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I have sent your entry to my econometrics professor who is the head of the head of Msc in financial economics programme at Bilgi university.(Currently i am studying Mathematics and Economics at Bilgi.) I simply asked his opinion on this issue.
As far as i know from Statistics that i took last year flipping a coin can be used as a pedagogic example in the subject of Probability. There is a 50% chance of appearing a head and tail respectively. Can we calculate an expected value before tossing a coin. Which tools of the economics can we use to make such a calculation. I mean ''Most of the time you are better off flipping a coin than having a Ph.D. in financial economics''

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Thanks Dani. Milton Friedman was asked about the Euro a couple of times and he did forcast, unfortunately, with closer magnitude but opposite sign. But then, a question remains for you. As a chair of a policy oriented development program, how much trust do you have on the models people learn in the program and derive policy conclusions if we do expect a lot from "our" models?

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