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Forecasting the Polish zloty with non-linear models

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Abstract

The literature on exchange rate forecasting is vast. Many researchers have tested whether implications of theoretical economic models or the use of advanced econometric techniques can help explain future movements in exchange rates. The results of the empirical studies for major world currencies show that forecasts from a naive random walk tend to be comparable or even better than forecasts from more sophisticated models. In the case of the Polish zloty, the discussion in the literature on exchange rate forecasting is scarce. This article fills this gap by testing whether non-linear time series models are able to generate forecasts for the nominal exchange rate of the Polish zloty that are more accurate than forecasts from a random walk. Our results confirm the main findings from the literature, namely that it is difficult to outperform a naive random walk in exchange rate forecasting contest.

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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 81.

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Length: 29
Date of creation: 2011
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Handle: RePEc:nbp:nbpmis:81

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Keywords: Exchange rate forecasting; Polish zloty; Markov-switching models; Artificial neural networks;

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Cited by:
  1. 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. Jakub Muck & Pawel Skrzypczynski, 2012. "Can we beat the random walk in forecasting CEE exchange rates?," National Bank of Poland Working Papers 127, National Bank of Poland, Economic Institute.

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