Exchange Rates Forecasting Model : An Alternative Estimation Procedure

Venus, Khim-Sen Liew and Ahmad Zubaidi, Baharumshah and Lim, Kian-Ping (2003) Exchange Rates Forecasting Model : An Alternative Estimation Procedure. Research Gate.

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This study proposes an alternative procedure for modelling exchange rates behaviour, which is a linear combination of a long-run function and a short-run function. Our procedure involves modelling of the long-run relationship and this is followed by the short-run function. Among all the possible combination of modelling techniques, we proposed the simplest form, namely modelling the long-run function by the well established purchasing power parity (PPP) based model and setting up the short-run function based on its time series properties. Results of this study suggests that our procedure yields powerful forecasting models as they easily outperform the simple random walk model--which is rarely defeated in the literature of exchange rate forecasting--in term of out-of-sample forecasting, for all the forecast horizons ranging from one to fourteen quarters. This study provides us with some hope of achieving a reasonable forecast for the ASEAN currencies using the fundamental monetary model just by a simple adaptation.

Item Type: Article
Uncontrolled Keywords: forecasting, exchange rate, purchasing power parity, interest rate, differential, mean deviation, mean percentage error, Fisher’s sign test, unimas, university, universiti, Borneo, Malaysia, Sarawak, Kuching, Samarahan, ipta, education, research, Universiti Malaysia Sarawak.
Subjects: H Social Sciences > HG Finance
Divisions: Academic Faculties, Institutes and Centres > Faculty of Economics and Business
Depositing User: Gani
Date Deposited: 08 May 2020 01:18
Last Modified: 08 Jun 2021 10:17

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