Forecasting real eff ective exchange rate indices of currencies using a stochastic factor
DOI:
https://doi.org/10.21638/11701/spbu05.2017.401Abstract
This article considers the possibility of forecasting real effective exchange rate indices for leading world countries. A stable unified mean trajectory for a reliable forecast of the index cannot be constructed using data from 31 January 1994 to 30 April 2017; however, it is reasonable to use data of the last period for this purpose. To construct a short-term forecast of real effective exchange rates based on initial value, we propose using a simulation with a discrete approximation of stochastic differential equations of Merton, Vasicek, Dosen, Ogden, and Cox-Ingersoll-Ross, and a polynomial residues model. Simulations using discrete approximations of the Vasicek, Merton, Dosen, and Ogden equations did not allow constructing a reliable forecast of the specified index using data from April 2016 to March 2017 for the USA, UK, Eurozone countries, Japan, and Switzerland. Processing simulation results based on a discrete approximation of the stochastic Cox-Ingersoll-Ross equation and the polynomial residues model, and for the considered countries for most of the same time period, resulted in a 50 % confidence interval for the mean trajectory of observed values of effective exchange rates indexes. The quality of the forecast essentially depends on the selected time period and methods used to determine the numerical parameters of discrete approximations for the original stochastic equations.
Keywords:
real effective exchange rates, stochastic equations, dynamics of exchange rates, models of polynomial residues, discrete linear approximation, simulation, confidence intervals, forecasting, given current values
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References
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Translation of references in Russian into English
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Published
2017-12-29
How to Cite
Воронцовский, А. В., & Вьюненко, Л. Ф. (2017). Forecasting real eff ective exchange rate indices of currencies using a stochastic factor. St Petersburg University Journal of Economic Studies, 33(4), 522–549. https://doi.org/10.21638/11701/spbu05.2017.401
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Macroeconomic research
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Articles of the St Petersburg University Journal of Economic Studies are open access distributed under the terms of the License Agreement with Saint Petersburg State University, which permits to the authors unrestricted distribution and self-archiving free of charge.
