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Beating the random walk in Central and Eastern Europe

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  • Jes�s Crespo Cuaresma

    (University of Vienna, Austria)

  • Jaroslava Hlouskova

    (Institute for Advanced Studies, Austria)

Abstract

We compare the accuracy of vector autoregressive (VAR), restricted vector autoregressive (RVAR), Bayesian vector autoregressive (BVAR), vector error correction (VEC) and Bayesian error correction (BVEC) models in forecasting the exchange rates of five Central and Eastern European currencies (Czech Koruna, Hungarian Forint, Slovak Koruna, Slovenian Tolar and Polish Zloty) against the US Dollar and the Euro. Although these models tend to outperform the random walk model for long-term predictions (6 months ahead and beyond), even the best models in terms of average prediction error fail to reject the test of equality of forecasting accuracy against the random walk model in short-term predictions. Copyright © 2005 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 24 (2005)
Issue (Month): 3 ()
Pages: 189-201

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Handle: RePEc:jof:jforec:v:24:y:2005:i:3:p:189-201

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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Cited by:
  1. Égert, Balázs & Kočenda, Evžen, 2014. "The impact of macro news and central bank communication on emerging European forex markets," Economic Systems, Elsevier, vol. 38(1), pages 73-88.
  2. Roman Hotvath, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Applicable for Setting the Central Parity?," International Finance 0509006, EconWPA.
  3. repec:ecu:wpaper:2010-01 is not listed on IDEAS
  4. Michał Rubaszek & Paweł Skrzypczyński & Grzegorz Koloch, 2010. "Forecasting the Polish Zloty with Non-Linear Models," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 2(2), pages 151-167, March.
  5. Bask , Mikael & Fidrmuc , Jarko, 2006. "Fundamentals and technical trading: behaviour of exchange rates in the CEECs," Research Discussion Papers 10/2006, Bank of Finland.
  6. Jesús Crespo Cuaresma & Anna Orthofer, 2010. "Modeling and Predicting the EUR/USD Exchange Rate: The Role of Nonlinear Adjustments to Purchasing Power Parity," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 64–76.
  7. Ondrej Schneider & Jan Zapal, 2006. "Fiscal Policy in New EU Member States: Go East, Prudent Man!," Post-Communist Economies, Taylor & Francis Journals, vol. 18(2), pages 139-166.
  8. Nikola Gradojević & Vladimir Djaković & Goran Andjelić, 2010. "Random Walk Theory and Exchange Rate Dynamics in Transition Economies," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(3), pages 303-320, September.
  9. Ardic, Oya Pinar & Ergin, Onur & Senol, G. Bahar, 2008. "Exchange Rate Forecasting: Evidence from the Emerging Central and Eastern European Economies," MPRA Paper 7505, University Library of Munich, Germany.
  10. K. Triantafyllopoulos, 2008. "Multivariate stochastic volatility with Bayesian dynamic linear models," Papers 0802.0214, arXiv.org.
  11. Roman Horváth, 2005. "Real Equilibrium Exchange Rate Estimates: To What Extent Are They Applicable for Setting the Central Parity?," Working Papers IES 75, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.

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