I believe that in light of severe shocks, there is no accuracy in predicting exchange rate fluctuations, because these severe fluctuations affect the ability and accuracy of monetary and financial indicators, tools, and policies that can be used in predicting exchange rate fluctuations. A clear example of this is the Syrian and Lebanese cases.
Check this paper it might be helpful. It is titled “Exchange Rate Models Are Better Than You Think” by Charles Engel.
The paper argues that exchange rates can help forecast the observed fundamentals if exchange rates react to news about future economic fundamentals
Charles and Darné (2017) employ the models estimated on jump-filtered returns. They find that the models estimated on filtered returns provide better out-of-sample forecasts than those estimated on raw return series. This is a promising way in the presence of extreme observations before running GARCH-MIDAS.
Charles, A., Darné, O., 2017. Forecasting crude-oil market volatility: further evidence with jumps. Energy Econ. 67, 508–519.
According to research from the National Bureau of Economic Research (NBER), extreme shocks do not help forecast exchange rate volatility. The study found that international prices of traded goods exhibited one year of nominal rigidity, or price stickiness, regardless of how volatile rates were. This means that shocks only yielded small price movements over a short to medium term. However, the study does not indicate when the effect is the strongest, or how soon it wears off, so it would provide vague guidance for policymakers and investors during decision-making.
Exchange rate volatility is uncontrollable and not possible to forecast the exchange rate based on the extreme shocks of exchange rate oscillations. Based on the information of extreme shocks we can analyze and understand the movements of exchange rate. In the process of analyzing and understanding the movements of share prices and exchange rates the researchers have been applying the technical analysis.
- Badges
- Science topic
- Similar topics
- Linguistics
- Composition Studies
- Publication