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Chun-Teck Lye, Tze-Haw Chan and Chee-Wooi Hooy
''Nonlinear prediction of Malaysian exchange rate with monetary fundamentals''
( 2011, Vol. 31 No.3 )
This paper compares one-step-ahead out-of-sample predictions on Malaysian Ringgit-US Dollar exchange rate using the generalized regression neural network for a range of forecasting horizons from 1991M3 to 2008M8. We find that the monetary fundamentals are significant in explaining the dynamics of Malaysian exchange rate in a longer forecast horizon as the performance of monetary exchange rate models outperformed the random walk benchmark model. The results also revealed that Malaysian exchange rate market provides profitable short-term arbitrage opportunities with lagged observations, and the integration of autoregressive terms into the monetary exchange rate models enhanced the out-of-sample forecasting performance.
Keywords: Autoregressive, monetary model, neural network, random walk
JEL: C5 - Econometric Modeling: General
F3 - International Finance: General
Manuscript Received : Dec 28 2010 Manuscript Accepted : Jul 05 2011

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