Exchange Rate Forecasting

There are several approaches that can be used when it comes to actually PREDICTING what will happen to exchange rates in the future, nevermind the actual models for what causes changes and what happens when there are changes!

One of the most popular approaches is called econometrics, and these essentially look at historical data and on the back of it they see what has actually in practice led to the changes (though of course even deducing that can be controversial as people can argue about what the real, underlying cause of each change was!)

Anyhow with a little research, time and effort models can be made based on the old data.

Then it's just a case of pumping in the current data in order to see what will happen to the exchange rate in the future.

However of course this requires predictions for some factors to be entered into the equations, leading to potentially massive uncertainty as to what will happen based on how accurate those predictions turn out to be.

Also of course there is no guarantee that the impact one set of figures had on the past will happen in the same proportion in the modern world particularly with more and more factors seeming to contribute all the time, therefore it would seem that these models may not actually be as good as first hoped or they might appear at first glance.

Balance of Payments Approach
Fixed Exchange Rates
The Interest Parity Condition
The Exchange Rate Mechanism Explained
The Asset Market Approach

Exchange Rate Forecasting

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