Sains Malaysiana 41(4)(2012): 481-488

Point Forecast Markov Switching Model for U.S. Dollar/ Euro Exchange Rate

(Ramalan Titik Menggunakan Model Peralihan Markov untuk Kadar Pertukaran

Wang Dolar US/Euro)

Hamidreza Mostafaei^1,2 * & Maryam Safaei¹

¹Department of Statistics, Faculty of Basic Sciences

The Islamic Azad University North Tehran Branch, Tehran- Iran

²Department of Economics Energy, Institute for International Energy Studies (IIES)

Tehran- Iran

Received: 21 July 2011 / Accepted: 7 October 2011

ABSTRACT

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.

Keywords: Exchange rate; Markov switching; point forecast

ABSTRAK

Kajian ini mencadangkan kaedah ramalan titik menggunakan model autoregresi peralihan Markov. Untuk situasi dua rejim, kebarangkalian sama ada ianya berada dalam rejim 1 atau 2 untuk proses h tempoh ke hadapan diberikan oleh kebarangkalian keadaan mantap. Seterusnya, dengan menggunakan keputusan yang diperoleh pada masa t untuk setiap rejim dan kebarangkalian keadaan mantap, kami mempersembahkan ramalan titik h langkah kehadapan. Aplikasi empirikal kaedah ramalan ini dengan menggunakan kadar pertukaran wang US dolar/Euro menunjukkan bahawa model autoregresi peralihan Markov mampu memberikan ramalan yang lebih baik berbanding dengan model perjalanan rawak berserta hanyutan. Keputusan ramalan luar sampel menunjukkan bahawa kadar pertukaran asing US Dollar/Euro akan meningkat dari Mei 2011 hingga Mei 2013.

Kata kunci: Kadar pertukaran wang; ramalan titik; peralihan Markov

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*Corresponding author; email:  h_mostafaei@iau-tnb.ac.ir