Forecasting indian rupee/us dollar: arima, exponential smoothing, naïve, nardl, combination techniques

AsadUllah, Muhammad and Mujahid, Hira and I. Tabash, Mosab and Ayubi, Sharique and Sabri, Rabia (2020): Forecasting indian rupee/us dollar: arima, exponential smoothing, naïve, nardl, combination techniques. Published in: Academy of Accounting and Financial Studies Journal , Vol. 25, No. 3 (April 2021)

Abstract

The primary purpose of the study is to forecast the exchange rate of Indian Rupees against the US Dollar by combining the three univariate time series models i.e., ARMA/ARIMA, exponential smoothing model, Naïve and one non-linear multivariate model i.e., NARDL. For this purpose, the authors choose the monthly data of exchange rate and macro-economic fundamentals i.e., trade balance, federal reserves, money supply, GDP, inflation rate and interest rate over the period from January 2011 to December 2020. The data from January 2020 to December 2020 are held back for the purpose of in-sample forecasting. By applying all the models individually and combinedly, the NARDL model out performs other individual and combined models with the least MAPE value of 0.6653. It is the evidence that the Indian Rupee may forecast through non-linear analysis of macro-economic fundamentals rather than single univariate models. The findings will be beneficial for the policy makers, FOREX market, traders, tourists and other financial markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: Forecasting, Exchange Rate, Auto-Regressive, Naïve, Exponential Smoothing.
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F47 - Forecasting and Simulation: Models and Applications

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