Can We Beat the Random Walk in Forecasting CEE Exchange Rates?
National bank of Poland Working Paper No. 127
19 Pages Posted: 19 Oct 2012 Last revised: 8 Jul 2016
Date Written: October 1, 2012
Abstract
It is commonly known that various econometric techniques fail to consistently outperform a simple random walk model in forecasting exchange rates. The aim of this study is to analyse whether this also holds for selected currencies of the CEE region as the literature relating to the ability of forecasting these exchange rates is scarce. We tackle this issue by comparing the random walk based out-of-sample forecast errors of the Polish zloty, the Czech koruna and the Hungarian forint exchange rates against the euro with the corresponding errors generated by various single- and multi-equation models of these exchange rates. The results confirm that it is very difficult to outperform a simple random walk model in our CEE currencies forecasting contest.
Keywords: CEE currencies, exchange rate forecasting, random walk, VAR, BVAR
JEL Classification: C22, C32, C53, F31, G17
Suggested Citation: Suggested Citation
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