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Exchange rates forecasting model: an alternative estimation procedure

This study proposes an alternative procedure for modelling exchange rates behaviour, which is a linear combination of a long-run function and a short-run function. Our procedure involves modelling of the long-run relationship and this is followed by the short-run function. Among all the possible co...

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Main Authors: Baharumshah, Ahmad Zubaidi, Liew, Khim Sen, Lim, Kian Ping
Format: Article
Language:English
Published: Universiti Putra Malaysia Press 2004
Online Access:http://psasir.upm.edu.my/id/eprint/3663/1/Exchange_Rates_Forecasting_Model_An.pdf
http://psasir.upm.edu.my/id/eprint/3663/
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spelling my.upm.eprints.36632016-02-12T08:19:50Z http://psasir.upm.edu.my/id/eprint/3663/ Exchange rates forecasting model: an alternative estimation procedure Baharumshah, Ahmad Zubaidi Liew, Khim Sen Lim, Kian Ping This study proposes an alternative procedure for modelling exchange rates behaviour, which is a linear combination of a long-run function and a short-run function. Our procedure involves modelling of the long-run relationship and this is followed by the short-run function. Among all the possible combinations of modelling techniques, we proposed the simplest form, namely modelling the long-run function by the well established purchasing power parity (PPP) based model and setting up the short-run function based on its time series properties. Results of this study suggest that our procedure yields powerful forecasting models as they easily outperform the simple random walk model-which is rarely defeated in the literature of exchange rate forecasting-in terms of out-of-sample forecasting, for all the forecast horizons ranging from one to fourteen quarters. This study provides us with some hope of achieving a reasonable forecast for the ASEAN currencies using the fundamental monetary model just by a simple adaptation. Universiti Putra Malaysia Press 2004 Article PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/3663/1/Exchange_Rates_Forecasting_Model_An.pdf Baharumshah, Ahmad Zubaidi and Liew, Khim Sen and Lim, Kian Ping (2004) Exchange rates forecasting model: an alternative estimation procedure. Pertanika Journal of Science & Technology, 12 (1). pp. 149-172. ISSN 0128-7680; ESSN: 2231-8526
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
description This study proposes an alternative procedure for modelling exchange rates behaviour, which is a linear combination of a long-run function and a short-run function. Our procedure involves modelling of the long-run relationship and this is followed by the short-run function. Among all the possible combinations of modelling techniques, we proposed the simplest form, namely modelling the long-run function by the well established purchasing power parity (PPP) based model and setting up the short-run function based on its time series properties. Results of this study suggest that our procedure yields powerful forecasting models as they easily outperform the simple random walk model-which is rarely defeated in the literature of exchange rate forecasting-in terms of out-of-sample forecasting, for all the forecast horizons ranging from one to fourteen quarters. This study provides us with some hope of achieving a reasonable forecast for the ASEAN currencies using the fundamental monetary model just by a simple adaptation.
format Article
author Baharumshah, Ahmad Zubaidi
Liew, Khim Sen
Lim, Kian Ping
spellingShingle Baharumshah, Ahmad Zubaidi
Liew, Khim Sen
Lim, Kian Ping
Exchange rates forecasting model: an alternative estimation procedure
author_facet Baharumshah, Ahmad Zubaidi
Liew, Khim Sen
Lim, Kian Ping
author_sort Baharumshah, Ahmad Zubaidi
title Exchange rates forecasting model: an alternative estimation procedure
title_short Exchange rates forecasting model: an alternative estimation procedure
title_full Exchange rates forecasting model: an alternative estimation procedure
title_fullStr Exchange rates forecasting model: an alternative estimation procedure
title_full_unstemmed Exchange rates forecasting model: an alternative estimation procedure
title_sort exchange rates forecasting model: an alternative estimation procedure
publisher Universiti Putra Malaysia Press
publishDate 2004
url http://psasir.upm.edu.my/id/eprint/3663/1/Exchange_Rates_Forecasting_Model_An.pdf
http://psasir.upm.edu.my/id/eprint/3663/
_version_ 1643822676283752448
score 13.211869

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