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The out-of-sample forecasting performance of non-linear models of real exchange rate behaviour: The case of the South African Rand

Author

Listed:
  • Goodness C. Aye
  • Mehmet Balcilar
  • Adél Bosch
  • Rangan Gupta
  • Francois Stofberg

Abstract

This paper analyses the out-of-sample forecasting performance of non-linear vs. linear models for the South African rand against the United States dollar and the British pound, in real terms. We compare the forecasting performance of point, interval and density forecasts for non-linear Band-TAR and ESTAR models to linear autoregressive models. Our data spans from 1970:01 to 2012:07, and we found that there are no significant gains from using either the Band-TAR or ESTAR non-linear models, compared to the linear AR model in terms of out-of-sample forecasting performance, especially at short horizons. We draw similar conclusions to other literature, and find that for the South African rand against the United States dollar and British pound, non-linearities are too weak for Band-TAR and ESTAR models to estimate.

Suggested Citation

  • Goodness C. Aye & Mehmet Balcilar & Adél Bosch & Rangan Gupta & Francois Stofberg, 2013. "The out-of-sample forecasting performance of non-linear models of real exchange rate behaviour: The case of the South African Rand," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 10(1), pages 121-148, April.
    • Handle: RePEc:liu:liucej:v:10:y:2013:i:1:p:121-148
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    Cited by:

    1. Mehmet Balcilar & Rangan Gupta & Charl Jooste, 2014. "Is the Rand Really Decoupled from Economic Fundamentals?," Working Papers 201439, University of Pretoria, Department of Economics.
    2. Xolani Sibande, 2023. "Monetary policy and herding behaviour in the ZAR market," Working Papers 11053, South African Reserve Bank.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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