Can we beat the random walk in forecasting CEE exchange rates?

Jakub Mućk and Paweł Skrzypczyński

No 127, NBP Working Papers from Narodowy Bank Polski

Abstract: It is commonly known that various econometric techniques fail to consistently outperform a simple random walk model in forecasting exchange rates. The aim of this study is to analyse whether this also holds for selected currencies of the CEE region as the literature relating to the ability of forecasting these exchange rates is scarce. We tackle this issue by comparing the random walk based out-of-sample forecast errors of the Polish zloty, the Czech koruna and the Hungarian forint exchange rates against the euro with the corresponding errors generated by various single- and multi-equation models of these exchange rates. The results confirm that it is very difficult to outperform a simple random walk model in our CEE currencies forecasting contest.

Keywords: CEE currencies; exchange rate forecasting; random walk; VAR; BVAR (search for similar items in EconPapers)
JEL-codes: C22 C32 C53 F31 G17 (search for similar items in EconPapers)
Pages: 19
Date: 2012
New Economics Papers: this item is included in nep-cba, nep-for, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:127

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