Predicting United Arab Emirates' real effective exchange rates using oil prices

Abstract

We examine whether oil prices help produce accurate forecasts of the real broad effective exchange rate of the United Arab Emirates (UAE). Using monthly data for 1994–1999, we formulate a univariate moving average (MA) and an augmented moving average (A‐MA) model to generate multi‐period forecasts of UAE real exchange rates for 2000–2019. The MA model utilises past information in real exchange rates, while the A‐MA model utilises past information in both real exchange rates and oil prices. Our results indicate that oil prices help produce accurate forecasts of UAE real exchange rates only for 2000–2009; that is, for this period, the A‐MA forecasts are unbiased, outperform the MA forecasts and are directionally accurate. As for 2009–2019, we take a non‐parametric approach and show that oil price changes accurately predict directional change in UAE real effective exchange rates.

An Empirical Analysis of the Influence of RMB Exchange Rate on SSE Real Estate Index

“…While there are fewer studies about the real effective exchange rate's impact on real estate price. Baghestani (2019) [12] developed A-MA model to predict the real effective exchange rate of the UAE using monthly data of oil prices from 1994-2009, while the changes in the real effective exchange rate of the UAE were derived by a non-parametric approach based on the data from 2009-2019. Alleyne (2020) developed a disaggregated data demand model, focusing on the impact of the real effective exchange rate on tourism demand.…”

Oil prices and Mexico’s exchange rates in North America

“…According to the wealth channel, when oil prices increase, wealth is transferred from oil‐importing countries to oil‐exporting countries, and, therefore, currencies of oil‐exporting (importing) countries appreciate (depreciate) through current account imbalances and portfolio reallocation (Beckmann and Czudaj, 2013). Empirical studies have generally focused on whether past information in oil prices predicts exchange rates by using various versions of Granger‐causality tests or out‐of‐sample forecasting (Bal and Rath, 2015; Baghestani and AbuAl‐Foul, 2019; Baghestani et al ., 2019). A handful of empirical studies, however, have found causality running from exchange rates to oil prices (Sadorsky, 2000; Akram, 2009; Beckmann and Czudaj, 2013).…”