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Modelling The World Exchange Rates:Dynamics, Volatility And Forecasting

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  • Nwaobi, Godwin

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).

Suggested Citation

  • Nwaobi, Godwin, 2008. "Modelling The World Exchange Rates:Dynamics, Volatility And Forecasting," MPRA Paper 6958, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:6958
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    File URL: https://mpra.ub.uni-muenchen.de/6958/1/MPRA_paper_6958.pdf
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    References listed on IDEAS

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    1. Booth, Alison L & Chatterji, Monojit, 1998. "Unions and Efficient Training," Economic Journal, Royal Economic Society, vol. 108(447), pages 328-343, March.
    2. Cahuc, Pierre & Michel, Philippe, 1996. "Minimum wage unemployment and growth," European Economic Review, Elsevier, vol. 40(7), pages 1463-1482, August.
    3. Derek Laing & Theodore Palivos & Ping Wang, 1995. "Learning, Matching and Growth," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 115-129.
    4. Burdett, Ken & Smith, Eric, 2002. "The low skill trap," European Economic Review, Elsevier, vol. 46(8), pages 1439-1451, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    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;

    JEL classification:

    • F00 - International Economics - - General - - - General
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G1 - Financial Economics - - General Financial Markets
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • 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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