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Modelling The World Exchange Rates:Dynamics, Volatility And Forecasting

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Nwaobi, Godwin

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Abstract

Indeed, 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6958.

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Date of creation: 01 Feb 2008
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Handle: RePEc:pra:mprapa:6958

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Keywords: 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
G1 - Financial Economics - - General Financial Markets
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
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

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  1. Gollier, Christian & Jullien, Bruno & Treich, Nicolas, 2000. "Scientific progress and irreversibility: an economic interpretation of the 'Precautionary Principle'," Journal of Public Economics, Elsevier, vol. 75(2), pages 229-253, February. [Downloadable!] (restricted)
  2. Minh Ha-Duong & Michael Grubb & Jean-Charles Hourcade, 1997. "Influence of socioeconomic inertia and uncertainty on optimal CO2-emission abatement," Post-Print halshs-00002452_v1, HAL. [Downloadable!]
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This page was last updated on 2008-11-17.


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