TITLE:
Improving the Forecast Accuracy of Oil-Exchange Rate Nexus in GCC Countries
AUTHORS:
Onuoha Ikwor Nnachi
KEYWORDS:
Oil Price, Exchange Rate, Forecast Evaluation, GCC Countries
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.15,
November
15,
2018
ABSTRACT: This paper renders new evidence on the
predictability of GCC dollar exchange rates using crude oil prices relying on
the approach of Westerlund [1] [2] that accounts for salient features of the
predictor. The results show the presence of significant in-sample
predictability of exchange rates using crude oil prices (Brent and WTI prices)
across the GCC countries. The results of forecast evaluation based on the root
mean square error (RMSE), Campbell-Thompson (C-T) statistic and Diebold-Mariano
(D-M) statistic are rather mixed. The superior forecast performance of the
oil-based exchange rate model is highly sensitive to the choice of benchmark
time-series models. We, however, conclude the overwhelming forecast performance
of time-series models (namely, AR, ARMA, and ARFIMA) over our oil-based
exchange rate model in predicting exchange rates across the GCC region.