Do Real Exchange Rates Follow a Random Walk?: Extracted Inflation-Based Evidence from Japanese Yen

Applying genetic programming and artificial neural networks to raw as well as wavelet-transformed exchange rate data showed that genetic programming may have good extended forecasting abilities. Although it is well known that most predictions of exchange rates using many alternative techniques could not deliver better forecasts than the random walk model, in this paper employing natural computational strategies to forecast three different exchange rates produced two extended forecasts (that go beyond one-step-ahead) that are better than naïve random walk predictions. Sixteen-step-ahead forecasts obtained using genetic programming outperformed the one- and sixteen-step-ahead random walk US dollar/Taiwan dollar exchange rate predictions. Further, sixteen-step-ahead forecasts of the wavelet-transformed US dollar/Japanese Yen exchange rate also using genetic programming outperformed the sixteen-step-ahead random walk predictions of the exchange rate. However, random walk predictions of the US dollar/British pound exchange rate outperformed all forecasts obtained using genetic programming. Random walk predictions of the same three exchange rates employing raw and wavelet-transformed data also outperformed all forecasts obtained using artificial neural networks.

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Real Exchange Rate Behavior under Peg: Evidence from the Chinese RMB and Malaysian MYR

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091509001587 ◽

2009 ◽

Vol 12 (01) ◽

pp. 141-158 ◽

Cited By ~ 2

Author(s):

Yongjian E ◽

Anthony Yanxiang Gu ◽

Chau-Chen Yang

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Real Exchange Rates ◽

Exchange Rate Volatility ◽

The Us ◽

Rate Behavior ◽

Japanese Yen ◽

Chinese Yuan ◽

Real Exchange Rate Volatility

The exchange-rate behavior of the Chinese yuan (RMB) and the Malaysian ringgit (MYR) indicates that the real exchange rate volatility of both the pegged currency/the anchor currency (the US dollar), and the pegged currency/the non-anchor currencies (Japanese yen and British pound) are lower under the pegged regime. The dynamic behavior of the pegged currencies' real exchange rates is consistent with the anchor currency as the speed of convergence of the Big Mac real exchange rates of the RMB, MYR, and the dollar against the floating currencies are almost identical during the pegged period. This may be due to similar inflation rate movements in the related economies. These results do not support the opinion that China has manipulated the value of its currency.

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