An Exchange Rate Forecasting Model when the Underlying Currency is Pegged to a Basket

Imad A. Moosa () and Nabeel E. Al-Loughani
Additional contact information
Imad A. Moosa: Department of Accounting and Finance, Monash University, Postal: PO Box 197 Caulfield East 3145 Victoria, Australia, http://www.monash.edu.au
Nabeel E. Al-Loughani: Kuwait University, Department of Finance & Financial Institutions, Postal: PO Box 5486, Safat Kuwait 13055, Kuwait ,, http://www.cba.edu.kw/DeptFinance.htm

Economia Internazionale / International Economics, 2000, vol. 53, issue 4, 537-550

Abstract: An ARDL model is estimated and subsequently used to forecast the exchange rate of the Kuwaiti dinar (KD) against the U.S. dollar. It is demonstrated that this exchange rate is related to the exchange rates of the yen, mark and pound against the dollar in accordance with the arrangement of pegging the KD to a basket of currencies with undeclared components. It is also shown that market forces cause the exchange rate to deviate from the level implied by this arrangement. The proposed model outperforms the random walk and the forward rate in out-of-sample forecasting.

JEL-codes: F31 F47 (search for similar items in EconPapers)
Date: 2000
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