Modelling and Forecasting the Indian Re/US Dollar Exchange Rate
This paper develops vector autoregressive and Bayesian vector autoregressive models to forecast the Indian Re/US dollar exchange rate which is governed by a managed floating exchange rate regime. It considers extensions of the monetary model that include the forward premium, capital inflows, volatility of capital flows, order flows and central bank intervention. The study finds that the monetary model generally outperforms the naïve model. It also finds that forecast accuracy can be improved by extending the monetary model to include forward premium, volatility of capital inflows and order flow. Information on intervention by the central bank also helps to improve forecasts at the longer end. The study also reports that the Bayesian vector autoregressive models generally outperform their corresponding VAR variants.
|Date of creation:||Feb 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (011) 27667005
Fax: (011) 27667159
Web page: http://www.cdedse.org/
More information through EDIRC
|Order Information:|| Web: http://www.cdedse.org/ Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hoidal Bjonnes, Geir & Rime, Dagfinn, 2003.
"Dealer Behavior and Trading Systems in Foreign Exchange Markets,"
SIFR Research Report Series
17, Institute for Financial Research.
- Bjonnes, Geir Hoidal & Rime, Dagfinn, 2005. "Dealer behavior and trading systems in foreign exchange markets," Journal of Financial Economics, Elsevier, vol. 75(3), pages 571-605, March.
- Geir Hoidal Bjonnes & Dagfinn Rime, 2003. "Dealer Behavior and Trading Systems in Foreign Exchange Markets," Working Paper 2003/10, Norges Bank.
- Christopher J. Neely, 2000.
"The practice of central bank intervention: looking under the hood,"
2000-028, Federal Reserve Bank of St. Louis.
- Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-10.
- Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
- Pasquale Della Corte & Lucio Sarno & Ilias Tsiakas, 2009.
"An Economic Evaluation of Empirical Exchange Rate Models,"
Review of Financial Studies,
Society for Financial Studies, vol. 22(9), pages 3491-3530, September.
- Della Corte, Pasquale & Sarno, Lucio & Tsiakas, Ilias, 2007. "An Economic Evaluation of Empirical Exchange Rate Models," CEPR Discussion Papers 6598, C.E.P.R. Discussion Papers.
- Christopher J. Neely, 2005.
"An analysis of recent studies of the effect of foreign exchange intervention,"
2005-030, Federal Reserve Bank of St. Louis.
- Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
- Artis, M. J. & Zhang, W., 1990. "BVAR forecasts for the G-7," International Journal of Forecasting, Elsevier, vol. 6(3), pages 349-362, October.
When requesting a correction, please mention this item's handle: RePEc:cde:cdewps:197. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sanjeev Sharma)
If references are entirely missing, you can add them using this form.