scholarly journals Is It Possible to Beat the Random Walk Model in Exchange Rate Forecasting? More Evidence for Brazilian Case.

2016 ◽  
Vol 14 (1) ◽  
pp. 65
Author(s):  
Emerson Fernandes Marçal ◽  
Eli Hadad Junior
Keyword(s):  
Exchange Rate ◽  
Random Walk ◽  
Exchange Rate Regime ◽  
Forecast Accuracy ◽  
Structural Models ◽  
Extensive Study ◽  
Forecast Combination ◽  
Correction Technique ◽  
Random Walk With Drift ◽  
Floating Exchange Rate

Abstract The seminal study of Meese et al. (1983) on exchange rate forecastability had a great impact on the international finance literature. The authors showed that exchange rate forecasts based on structural models are worse than a naive random walk. This result is known as the Meese--Rogoff (MR) puzzle. Although the validity of this result has been checked for many currencies, studies for the Brazilian currency are not common. In 1999, Brazil adopted the dirty floating exchange rate regime. Rossi (2013) ran an extensive study on the MR puzzle but did not analyse Brazilian data. Our goal is to run a “pseudo real-time experiment” to investigate whether forecasts based on econometric models that use the fundamentals suggested by the exchange rate monetary theory of the 80s can beat the random model for the case of the Brazilian currency. Our work has three main differences with respect to Rossi (2013). We use a bias correction technique and forecast combination in an attempt to improve the forecast accuracy of our projections. We also combine the random walk projections with the projections of the structural models to investigate if it is possible to further improve the accuracy of the random walk forecasts. However, our results are quite in line with Rossi (2013). We show that it is not difficult to beat the forecasts generated by the random walk with drift using Brazilian data, but that it is quite difficult to beat the random walk without drift. Our results suggest that it is advisable to use the random walk without drift, not only the random walk with drift, as a benchmark in exercises that claim the MR result is not valid.

Exchange Rate Regimes and Economic Stability

2010 ◽  
pp. 29-43
Author(s):  
S. Smirnov
Keyword(s):  
Exchange Rate ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Exchange Rate Policy ◽  
Real Sector ◽  
Economic Stability ◽  
Exogenous Shocks ◽  
Floating Exchange Rate ◽  
Rate Policy ◽  
Managed Floating

The Bank of Russia intends to introduce inflation targeting policy and exchange rate free floating regime in three years. Exogenous shocks absorption which stabilizes the real sector of economy is usually considered to be one of the advantages of free floating exchange rate policy. However, our research based on the analysis of 25 world largest economies exchange rates and industrial production during the crisis of 2008-2009 does not confirm this hypothesis. The article also analyzes additional risks associated with free floating exchange rate regime in Russia and presents some arguments in favor of managed floating exchange rate regime.

South Africa’s Trade Performance under Alternative Exchange Rate Regimes

2018 ◽  
Vol 10 (6) ◽  
pp. 261
Author(s):  
Romaine Patrick ◽  
Phocenah Nyatanga
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Exchange Rate Regime ◽  
Real Exchange Rates ◽  
Series Data ◽  
Growth Strategies ◽  
The Real ◽  
Real Price ◽  
Floating Exchange Rate

This study examined the effect exchange rates have on import and export volumes under alternative exchange rate policies adopted in South Africa over the period 1960 to 2017. Using quarterly time series data for the stated period, a log-linear error correction model is employed to estimate the country’s export and import elasticities, taking into account Gross Domestic Product (GDP), the real price of exports, the real price of imports and real exchange rates. Using the freely floating exchange rate regime as the base period, the study concluded that both export and import volumes are lower under a system of fixed exchange rates. Export and import volumes were also found to be lower under the dual exchange rate regime, relative to the freely floating exchange rate regime. In accordance with export-led growth strategies, exports were found to be higher and imports lower under a managed floating exchange rate regime. It is therefore recommended that South Africa revert to a more managed exchange rate regime, until the South African economy is developed to accommodate a freely floating exchange rate regime.

scholarly journals A free-floating currency regime during economic crisis: advantage or disadvantage?

2011 ◽  
Vol 59 (2) ◽  
pp. 165-176
Author(s):  
Lubor Lacina ◽  
Petr Toman
Keyword(s):  
Exchange Rate ◽  
Case Studies ◽  
Economic Crisis ◽  
Exchange Rate Regime ◽  
Mortgage Loans ◽  
National Currencies ◽  
Floating Exchange Rate ◽  
Paper Form ◽  
High Volatility ◽  
Negative Impacts

The paper deals with the identification of potential disadvantages associated with the existence of national currencies with the floating exchange rate regime during the current financial and economic crisis in countries postponing their entry into the eurozone. The hypothesis is that the advantages of a floating exchange rate may be outweighed by their disadvantages (high volatility of exchange rates). First part of the paper provides evidence about the development of Czech crown exchange rate since transition from fix to free float regime. Special attention will be given to the period during the recent global economic crisis. For the sake of comparison, evolution of other currencies in the region (zloty, forint and Slovak crown), will be taken to consideration. Second part of the paper form case studies identifying impact due to volatility on national currencies. Case studies were used to identify possible negative impacts from volatility in national currencies on export firms in the Czech Republic and holders of mortgage loans denominated in foreign currencies in Hungary. The last part of the paper will formulate recommendations for businesses entering into foreign trade relationships, as well as for policy makers in countries using national currencies which are preparing for membership in the eurozone.

scholarly journals Investigating the Economic and Financial Damage around Currency Peg Failures

2019 ◽  
Vol 12 (2) ◽  
pp. 92 ◽  
Author(s):  
Colin Ellis ◽  
Emilia Gyoerk
Keyword(s):  
Exchange Rate ◽  
Financial Stability ◽  
Currency Crises ◽  
Exchange Rate Regime ◽  
Banking Crisis ◽  
Banking System ◽  
Economic Damage ◽  
Real Economy ◽  
The Past ◽  
Floating Exchange Rate

The choice and structure of a country’s exchange rate regime has wide implications for the effectiveness and flexibility of monetary policy tools, as well as for economic and financial stability. We examine 21 instances where exchange rate pegs have been abandoned in the past, to gauge the potential economic damage associated with pegs failing. The sample includes major exchange rate shifts over the past thirty years, spanning from the Latin America currency crises of the 1990s to the peg abandonment in Egypt in 2016. Given the close interconnection of banks to the sovereign and the real economy, risks often flow through to, and can also be magnified by, the banking system. We therefore examine the interaction of currency peg abandonment with the occurrence of a banking crisis to investigate the different circumstances and impacts of exchange rate pegs failing. We have found that countries that simultaneously suffered a systemic banking crisis during the period of exchange rate regime shift also experienced significantly greater economic and financial damage following the adoption of a freely floating exchange rate. Nevertheless, regardless of whether there was a banking crisis, countries start showing signs of recovery after the same amount of time once the currency floated.

MANAGING EXCHANGE RATE VOLATILITY: A COMPARATIVE COUNTERFACTUAL ANALYSIS OF SINGAPORE, 1994–2003

2009 ◽  
Vol 54 (04) ◽  
pp. 543-568 ◽  
Author(s):  
PETER WILSON ◽  
HENRY SHANG REN NG
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regime ◽  
East Asian ◽  
Exchange Rate Volatility ◽  
Rate System ◽  
The Us ◽  
Floating Exchange Rate ◽  
Effective Exchange ◽  
Exchange Rate System ◽  
Effective Exchange Rate

This paper looks at how Singapore's exchange rate regime has coped with exchange rate volatility, by comparing the performance of Singapore's actual regime in minimizing the volatility of the nominal effective exchange rate (NEER) and the bilateral rate against the US dollar with some counterfactual regimes and the corresponding performance of eight other East Asian countries. In contrast to previous counterfactual exercises, we apply a more disaggregated methodology for the trade weights, a larger number of trade partners and ARCH/GARCH techniques to capture the time-varying characteristics of volatility. Our findings confirm that Singapore's managed floating exchange rate system has delivered relatively low currency volatility. Although there are gains in volatility reduction for all countries in the sample from the adoption of either a unilateral or a common basket peg, particularly post-Asian crisis, these gains are relatively low for Singapore, largely because of low actual volatility. There are additional gains for non-dollar peggers from stabilizing intra-east Asian exchange rates against the dollar if they were to adopt a basket peg, especially post-crisis, but the gains for Singapore are again relatively modest. Finally, the conclusion from previous counterfactual studies that there is little difference between a unilateral basket peg and a common basket peg in terms of stability reduction is confirmed.

scholarly journals South Africa’s Trade Performance under Alternative Exchange Rate Regimes

2018 ◽  
Vol 10 (6(J)) ◽  
pp. 261-271
Author(s):  
Romaine Patrick ◽  
Phocenah Nyatanga
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Exchange Rate Regime ◽  
Real Exchange Rates ◽  
Series Data ◽  
Growth Strategies ◽  
The Real ◽  
Real Price ◽  
Floating Exchange Rate

This study examined the effect exchange rates have on import and export volumes under alternative exchange rate policies adopted in South Africa over the period 1960 to 2017. Using quarterly time series data for the stated period, a log-linear error correction model is employed to estimate the country’s export and import elasticities, taking into account Gross Domestic Product (GDP), the real price of exports, the real price of imports and real exchange rates. Using the freely floating exchange rate regime as the base period, the study concluded that both export and import volumes are lower under a system of fixed exchange rates. Export and import volumes were also found to be lower under the dual exchange rate regime, relative to the freely floating exchange rate regime. In accordance with export-led growth strategies, exports were found to be higher and imports lower under a managed floating exchange rate regime. It is therefore recommended that South Africa revert to a more managed exchange rate regime, until the South African economy is developed to accommodate a freely floating exchange rate regime.

Sign in / Sign up

Export Citation Format

Share Document