Using an empirical Bayes model to estimate currency exchange rate

Ray Okafor

Journal of Applied Statistics, 1999, vol. 26, issue 8, 973-983

Abstract: An empirical Bayes (EB) model to estimate the exchange rate of a national currency is described. The national currency under consideration is typically non-convertible, and is generally associated with a weak economy of a Third World country. We take the Nigerian currency as an example. Using theta as a generic notation for the exchange rate parameter, a sequence of sample mean estimates theta i MN (i = 1, 2, …, m) is generated over m time periods. An EB model is formulated for the theta MN , from which the empirical Bayes estimates theta i EB are calculated. The performances of theta EB and the Central Bank of Nigeria (CBN) estimate theta CBN are compared. On several performance measures, theta EB is shown to be superior to theta CBN .

Date: 1999
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DOI: 10.1080/02664769921972

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