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

See all articles by Jakub Muck

Jakub Muck

National Bank of Poland - Department of Economics; Warsaw School of Economics (SGH) - Institute of Econometrics

Pawel Skrzypczynski

National Bank of Poland

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

Muck, Jakub and Skrzypczynski, Pawel, Can We Beat the Random Walk in Forecasting CEE Exchange Rates? (October 1, 2012). National bank of Poland Working Paper No. 127. Available at SSRN: https://ssrn.com/abstract=2163518 or http://dx.doi.org/10.2139/ssrn.2163518

Jakub Muck (Contact Author)

National Bank of Poland - Department of Economics ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) - Institute of Econometrics ( email )

Niepodleglosci 164
Warsaw, 02-554
Poland

Pawel Skrzypczynski

National Bank of Poland ( email )

00-919 Warsaw
Poland

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