Nonlinear prediction of Malaysian exchange rate with monetary fundamentals

Chun-Teck Lye (), Tze-Haw Chan () and Chee-Wooi Hooy
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Chun-Teck Lye: Multimedia University

Economics Bulletin, 2011, vol. 31, issue 3, 1960-1967

Abstract: This paper compares one-step-ahead out-of-sample predictions on Malaysian Ringgit-US Dollar exchange rate using the generalized regression neural network for a range of forecasting horizons from 1991M3 to 2008M8. We find that the monetary fundamentals are significant in explaining the dynamics of Malaysian exchange rate in a longer forecast horizon as the performance of monetary exchange rate models outperformed the random walk benchmark model. The results also revealed that Malaysian exchange rate market provides profitable short-term arbitrage opportunities with lagged observations, and the integration of autoregressive terms into the monetary exchange rate models enhanced the out-of-sample forecasting performance.

Keywords: Autoregressive; monetary model; neural network; random walk (search for similar items in EconPapers)
JEL-codes: C5 F3 (search for similar items in EconPapers)
Date: 2011-07-05
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Citations: View citations in EconPapers (1)

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