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

Author

Listed:
  • Mahesh Kumar Tambi

    (IIMT, Hyderabad-India)

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.

Suggested Citation

  • Mahesh Kumar Tambi, 2005. "FORECASTING EXCHANGE RATE :A Uni-variate out of sample Approach," International Finance 0506005, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0506005
    Note: Type of Document - pdf; pages: 18
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    References listed on IDEAS

    as
    1. Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, vol. 60(1), pages 85-107, May.
    2. Sarno,Lucio & Taylor,Mark P., 2003. "The Economics of Exchange Rates," Cambridge Books, Cambridge University Press, number 9780521485845.
    3. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Exchange rate forecasting; univariate analysis; ARIMA; Box- Jenkins methodology; out of sample approach;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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