Application of Vector Error Correction Model in Forecasting Exchange Rates (in Thai)
This paper applies monetary portfolio synthesis model and vector error correction model (VECM) in forecasting the exchange rates of Baht per Yen for a 24-month period from August 2006 to July 2008. The results show that the forecast values of August 2006-July 2007 period tended to diverge from the actual values. The error in terms of an RMSE of 0.075 was calculated. The political crisis in September 2006 may have affected the exchange rates. Meanwhile, the forecast values of August 2007-July 2008 period tended to get close to the actual values with an RMSE of only 0.041. The mitigation of the political crisis could have contributed to this. The results indicate that forecasting the exchange rates using VECM can be applied and the forecast values are acceptable.
Keywords: exchange rate, long-run relationship, vector error correction model
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