Haruna, Issahaku and Abdulai, Hamdeeya and Kriesie, Maryiam and Harvey, Simon K. (2015): Exchange rate forecasting in the West African Monetary Zone: a comparison of forecast performance of time series models. Published in: Ghanaian Journal of Economics , Vol. 3, No. December (30 December 2015): pp. 4569.

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Abstract
It has become an undisputable fact in economics and finance that conventional exchange rate determination models cannot outperform the random walk model in outofsample forecasting. We evaluate the empirical veracity of this wellknown fact in the West African Monetary Zone (WAMZ). We compare the outofsample forecast accuracy of the random walk hypothesis visavis the Autoregressive Moving Average (ARIMA) model, Generalised Autoregressive Conditional Heteroskedastic (GARCH) based models, and Vector Autoregressive (VAR) model. The root mean square error (RMSE) is used as the measure of forecast accuracy. We find evidence to refute the body of economic literature that supports the view that forecasts from the RWM are unbeatable. We show that if a nonlinear RWM is estimated, and the RMSE is used as the measure of forecast performance, the VAR model, the ARIMA model, and the GARCH(M) model generally outperform the RWM. However, when the assumption of linearity is sustained, the RWM convincingly outperforms all other models. We show that the type of model to use to achieve forecast accuracy depends on the time horizon, and the country for which the forecast is to be made.
Item Type:  MPRA Paper 

Original Title:  Exchange rate forecasting in the West African Monetary Zone: a comparison of forecast performance of time series models 
English Title:  Exchange rate forecasting in the West African Monetary Zone: a comparison of forecast performance of time series models 
Language:  English 
Keywords:  forecasting, exchange rate, West African Monetary Zone (WAMZ), time series models, Root Mean Square Error (RMSE), forecast evaluation 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C15  Statistical Simulation Methods: General E  Macroeconomics and Monetary Economics > E6  Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook F  International Economics > F3  International Finance > F31  Foreign Exchange F  International Economics > F4  Macroeconomic Aspects of International Trade and Finance 
Item ID:  97009 
Depositing User:  Dr. Issahaku Haruna 
Date Deposited:  07 Jul 2020 14:02 
Last Modified:  07 Jul 2020 14:02 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/97009 