Point forecast markov switching model for U.S. Dollar/ Euro exchange rate
This research proposes a point forecasting method into Markov switching autoregressive model. In case of two regimes, we proved the probability that h periods later process will be in regime 1 or 2 is given by steady-state probabilities. Then, using the value of h-step-ahead forecast data at time...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Universiti Kebangsaan Malaysia
2012
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| Online Access: | http://journalarticle.ukm.my/3939/1/14%2520Hamidreza.pdf http://journalarticle.ukm.my/3939/ http://www.ukm.my/jsm |
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| Institution: | Universiti Kebangsaan Malaysia |
| Language: | English |
| Summary: | This research proposes a point forecasting method into Markov switching autoregressive model. In case of two regimes,
we proved the probability that h periods later process will be in regime 1 or 2 is given by steady-state probabilities.
Then, using the value of h-step-ahead forecast data at time t in each regime and using steady-state probabilities, we
present an h-step-ahead point forecast of data. An empirical application of this forecasting technique for U.S. Dollar/
Euro exchange rate showed that Markov switching autoregressive model achieved superior forecasts relative to the
random walk with drift. The results of out-of-sample forecast indicate that the fluctuations of U.S. Dollar/ Euro exchange
rate from May 2011 to May 2013 will be rising. |
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