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FORECASTING EXCHANGE RATE :A Uni-variate out of sample Approach

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  • Mahesh Kumar Tambi

    (IIMT, Hyderabad-India)

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    Abstract

    In this paper we tried to build univariate model to forecast exchange rate of Indian Rupee in terms of different currencies like SDR, USD, GBP, Euro and JPY. Paper uses Box-Jenkins Methodology of building ARIMA model. Sample data for the paper was taken from March 1992 to June 2004, out of which data till December 2002 were used to build the model while remaining data points were used to do out of sample forecasting and check the forecasting ability of the model. All the data were collected from Indiastat database. Result of the paper shows that ARIMA models provides a better forecasting of exchange rates than simple auto- regressive models or moving average models. We were able to build model for all the currencies, except USD, which shows the relative efficiency of the USD currency market.

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    File URL: http://128.118.178.162/eps/if/papers/0506/0506005.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series International Finance with number 0506005.

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    Length: 18 pages
    Date of creation: 08 Jun 2005
    Date of revision:
    Handle: RePEc:wpa:wuwpif:0506005

    Note: Type of Document - pdf; pages: 18
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    Web page: http://128.118.178.162

    Related research

    Keywords: Exchange rate forecasting; univariate analysis; ARIMA; Box- Jenkins methodology; out of sample approach;

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    1. Kilian, Lutz & Taylor, Mark P, 2001. "Why is it so Difficult to Beat the Random Walk Forecast of Exchange Rates?," CEPR Discussion Papers 3024, C.E.P.R. Discussion Papers.
    2. Faust, Jon & Rogers, John H. & H. Wright, Jonathan, 2003. "Exchange rate forecasting: the errors we've really made," Journal of International Economics, Elsevier, vol. 60(1), pages 35-59, May.
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