Forecasting Exchange Rate of Pakistan Using Time Series Analysis

Sohail Akhtar, Maham Ramzan, Sajid Shah, Iftikhar Ahmad, Muhammad Imran Khan, Sadique Ahmad, Mohammed A. El-Affendi, Humera Qureshi and Tahir Mehmood

Mathematical Problems in Engineering, 2022, vol. 2022, 1-11

Abstract: Exchange rates are crucial in regulating the foreign exchange market's dynamics. Because of the unpredictability and volatility of currency rates, the exchange rate prediction has become one of the most challenging applications of financial time series forecasting. This study aims to build and compare the accuracy of various methods. The time series model Auto-Regressive Integrated Moving Average (ARIMA) and Generalized Auto-Regressive Conditional Heteroscedasticity (GARCH) are utilized to forecast the daily US dollar to Pakistan rupee currency exchange rates (USD/PKR). Lagged observations of the data series and moving average technical analysis are used in both models. Explanatory factors were used as indicators, and the prediction performance was assessed using a variety of commonly known statistical metrics. These statistical metrics suggested the presence of conditional heteroscedasticity. Thus, the process turns to capture the volatility effect of conditional heteroscedasticity through GARCH modeling. It may be inferred based on the results of tentative models; that the ARCH model outperforms the GARCH model in terms of predicting the USD/PKR exchange rate.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:9108580

DOI: 10.1155/2022/9108580

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