MODELLING THE WORLD EXCHANGE RATES:DYNAMICS, VOLATILITY AND FORECASTING

Godwin Nwaobi ()

MPRA Paper from University Library of Munich, Germany

Abstract: Indeed, the specification of equilibrium in the world economy depends on the exchange rate regime and thus, the early contributions to the postwar literature on exchange rate economics are to a large extent concerened with the role of speculation in foreign exchange markets. However, the world has known several exchange rate systems beginning with the fixed-gold standard, the adjustable-peg system, adjustable-parity system and the flexible exchange rate system. Yet, in 1997, when foreign exchange was deregulated, independent traders finally had access to the biggest trading market of the world; and these forex traders attempt to make money from the simultaneous buying and selling of foreign currencies. And within the forex market, many types of instruments can be used:futures market,spot market, and forward market.However, the degree of volatility tends to increase with the frequency with which observations are sampled and this can be seen clearly as one moves from monthly to daily observations on exchange rates. Thus the basic thrust of the paper is to analyse the forecasting accuracy of the full vector autoregressive(FVAR), mixed vector autoregressive(MVAR) and Bayesian vector autoregressive(BVAR) models of the selected currency pairs(based on the monetary/asset model of exchange rate determination).

Keywords: exchange rate; foreign exchange; forex; forecasting; vector autoregression; regimes; volatility; world; future markets; spotmarket; futures; options; assets; portfolio balance; brettonwood; IMF; Fixed rate; Floating rate; adjustable peg; purchasing power parity(PPP); Uncovered interest rate parity(UIP); internal balance; external balance; devaluation; overvaluation; pips; currency pairs; trading platform; forex allocation; parallel(black) market; banks; brokers; misalignment (search for similar items in EconPapers)
JEL-codes: C53 E42 E44 F00 F31 F37 G1 G15 (search for similar items in EconPapers)
Date: 2008-02-01
New Economics Papers: this item is included in nep-for, nep-ifn, nep-mon and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:6958

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