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Forecasting major Asian exchange rates using a new semiparametric STAR model

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  • Nan Cai
  • Zongwu Cai
  • Ying Fang
  • Qiuhua Xu

Abstract

To forecast exchange rates, this paper proposes a new semiparametric smooth transition autoregressive model by allowing state variables to enter into the transition function in a nonparametric way. We propose a three-stage estimation procedure to estimate both the parametric and nonparametric parts in the new model, and a simulation study is conducted to demonstrate satisfactory finite sample performance. The empirical results, based on the proposed model applied to forecasting five major Asian exchange rates, show that the new model has some advantages in out-of-sample forecasting performance. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Nan Cai & Zongwu Cai & Ying Fang & Qiuhua Xu, 2015. "Forecasting major Asian exchange rates using a new semiparametric STAR model," Empirical Economics, Springer, vol. 48(1), pages 407-426, February.
    • Handle: RePEc:spr:empeco:v:48:y:2015:i:1:p:407-426
    DOI: 10.1007/s00181-014-0888-5
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    2. He, Kaijian & Chen, Yanhui & Tso, Geoffrey K.F., 2018. "Forecasting exchange rate using Variational Mode Decomposition and entropy theory," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 510(C), pages 15-25.

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    More about this item

    Keywords

    Nonlinearity; Out-of-sample forecasting; Semiparametric estimation; STAR model; Time-varying; C53; C14; C21;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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