PKR Exchange Rate Forecasting Through Univariate and Multivariate Time Series Techniques

Abstract

This study aims to examine and compare the accuracy of time series and econometric forecasting models in the context of the exchange rate as we know that fluctuation in the exchange rate may affect the economic activities at the macro – level. For this purpose, the author has chosen the Pakistani Rupee exchange rate against United States Dollars with the annual data from 1980 to 2018. The results revealed that the exponential model provides the most effective accuracy in forecasting rather than the Naive, ARIMA and ARDL Co-integration model. This paper has also covered the gap of unavailability of literature regarding the application of ARDL and Exponential Smoothing model for the forecasting of the exchange rate in Pakistan. It is also anticipated that historical data do not play a vital role in the forecasting of the future trend of time series i.e. Pakistani Rupees against US Dollars. However, all three-time series anticipated that the recent observations play a significant role in the speculation of the upcoming future trend. Keywords: Forecasting, Exchange Rate, Naïve Model, ARDL Co-Integration model, Econometrics