Modeling and Forecasting the Metical-Rand Exchange Rate
AbstractThis paper investigates the ability of the Dornbusch (1976) sticky-price model for the nominal metical-rand exchange rate, over the period 1994:1-2005:4 in explaining the exchange rate movements of Mozambique. Based on the model, the authors find that there is a stable relationship between the exchange rate and the fundamentals. Gross domestic product and inflation differentials between Mozambique and South Africa play the major role in explaining the metical-rand exchange rate. However, when the Dornbusch (1976) model is re-estimated over the period of 1994:1-2003:4, and the out-of-sample forecast errors are compared with the atheoretical, Classical and Bayesian variants of the Vector Autoregressive (VAR) and Vector Error Correction (VEC) models, and models capturing alternative forms of the Efficient Market Hypothesis (EMH) of exchange rates, the sticky-price model performs poorer. Overall, the Bayesian VEC models (BVECMs) with relatively tight priors, are best suited for forecasting the metical-rand exchange rate, both in terms of out-of-sample forecasting and predicting turning points.
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Bibliographic InfoArticle provided by IUP Publications in its journal The IUP Journal of Monetary Economics.
Volume (Year): VI (2008)
Issue (Month): 4 (November)
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Other versions of this item:
- Samuel Zita & Rangan Gupta, 2007. "Modelling and Forecasting the Metical-Rand Exchange Rate," Working Papers 200702, University of Pretoria, Department of Economics.
- B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E - Macroeconomics and Monetary Economics
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- Riane de Bruyn & Rangan Gupta & Renee van Eyden, 2013. "Forecasting The Rand-Dollar And Rand-Pound Exchange Rates Using Dynamic Model Averaging," Working Papers 201307, University of Pretoria, Department of Economics.
- Rangan Gupta & Sonali Das, 2010.
"Predicting Downturns in the US Housing Market: A Bayesian Approach,"
The Journal of Real Estate Finance and Economics,
Springer, vol. 41(3), pages 294-319, October.
- Rangan Gupta & Sonali Das, 2008. "Predicting Downturns in the US Housing Market: A Bayesian Approach," Working Papers 200821, University of Pretoria, Department of Economics.
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