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Predicting Short-Term Exchange Rates with a Hybrid PPP/UIP Model

This study creates a model to predict short-term exchange rates as a combination of the relative purchasing power parity model (Grossman and Simpson 2011) and the interest power parity model. I then use the statistical techniques ARMA and GARCH to account for the variance of the terms. Previous works considered the effects of these models individually, but mine consider them in unison. I consider both in-sample and out-of-sample tests. I use data on five major exchange rates (JPY/USD, CAD/USD, CHF/USD, GBP/USD, and AUD/USD) sampled at a monthly frequency from 1989-2013. My model statistically significantly predicts these exchange rates over the January 2012 to January 2013 period.

Identiferoai:union.ndltd.org:CLAREMONT/oai:http://scholarship.claremont.edu/do/oai/:scripps_theses-1239
Date01 April 2013
CreatorsHuang, Xiaoyan
PublisherScholarship @ Claremont
Source SetsClaremont Colleges
Detected LanguageEnglish
Typetext
Formatapplication/pdf
SourceScripps Senior Theses
Rights© 2013 Xiaoyan Huang

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