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Abstract

It is commonly known that various econometric techniques fail to consistently outperform a simple random walk model in forecasting exchange rates. The aim of this study is to analyse whether this also holds for selected currencies of the CEE region as the literature relating to the ability of forecasting these exchange rates is scarce. We tackle this issue by comparing the random walk based out-of-sample forecast errors of the Polish zloty, the Czech koruna and the Hungarian forint exchange rates against the euro with the corresponding errors generated by various single- and multi-equation models of these exchange rates. The results confirm that it is very difficult to outperform a simple random walk model in our CEE currencies forecasting contest.

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File URL: http://www.nbp.pl/publikacje/materialy_i_studia/127_en.pdf
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Bibliographic Info

Paper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 127.

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Length: 19
Date of creation: 2012
Date of revision:
Handle: RePEc:nbp:nbpmis:127

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Related research

Keywords: CEE currencies; exchange rate forecasting; random walk; VAR; BVAR;

Find related papers by JEL classification:

• C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
• C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
• C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
• F31 - International Economics - - International Finance - - - Foreign Exchange
• G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

This paper has been announced in the following NEP Reports:

• NEP-ALL-2012-10-27 (All new papers)
• NEP-CBA-2012-10-27 (Central Banking)
• NEP-FOR-2012-10-27 (Forecasting)
• NEP-MON-2012-10-27 (Monetary Economics)
• NEP-TRA-2012-10-27 (Transition Economics)

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1. Michal Rubaszek & Pawel Skrzypczynski & Grzegorz Koloch, 2011. "Forecasting the Polish zloty with non-linear models," National Bank of Poland Working Papers 81, National Bank of Poland, Economic Institute.
   
   • 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.
2. Daniel F. Waggoner & Tao Zha, 1998. "Conditional forecasts in dynamic multivariate models," Working Paper 98-22, Federal Reserve Bank of Atlanta.
   
   • Daniel F. Waggoner & Tao Zha, 1999. "Conditional Forecasts In Dynamic Multivariate Models," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 639-651, November.

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