Modelling The World Exchange Rates:Dynamics, Volatility And Forecasting
AbstractIndeed, the specification of equilibrium in the world economy depends on the exchange rate regime and thus, the early contributions to the postwar literature on exchange rate economics are to a large extent concerened with the role of speculation in foreign exchange markets. However, the world has known several exchange rate systems beginning with the fixed-gold standard, the adjustable-peg system, adjustable-parity system and the flexible exchange rate system. Yet, in 1997, when foreign exchange was deregulated, independent traders finally had access to the biggest trading market of the world; and these forex traders attempt to make money from the simultaneous buying and selling of foreign currencies. And within the forex market, many types of instruments can be used:futures market,spot market, and forward market.However, the degree of volatility tends to increase with the frequency with which observations are sampled and this can be seen clearly as one moves from monthly to daily observations on exchange rates. Thus the basic thrust of the paper is to analyse the forecasting accuracy of the full vector autoregressive(FVAR), mixed vector autoregressive(MVAR) and Bayesian vector autoregressive(BVAR) models of the selected currency pairs(based on the monetary/asset model of exchange rate determination).
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 6958.
Date of creation: 01 Feb 2008
Date of revision:
exchange rate; foreign exchange; forex; forecasting; vector autoregression; regimes; volatility; world; future markets; spotmarket; futures; options; assets; portfolio balance; brettonwood; IMF; Fixed rate; Floating rate; adjustable peg; purchasing power parity(PPP); Uncovered interest rate parity(UIP); internal balance; external balance; devaluation; overvaluation; pips; currency pairs; trading platform; forex allocation; parallel(black) market; banks; brokers; misalignment;
Find related papers by JEL classification:
- F00 - International Economics - - General - - - General
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- G1 - Financial Economics - - General Financial Markets
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-09 (All new papers)
- NEP-FOR-2008-02-09 (Forecasting)
- NEP-IFN-2008-02-09 (International Finance)
- NEP-MON-2008-02-09 (Monetary Economics)
- NEP-MST-2008-02-09 (Market Microstructure)
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