A time series Analysis of NZD/USD exchange rate

Abstract

The purpose of this study is to build a model of economic and financial variables that can explain the exchange rate. Initially, there is a literature review that examines what different methodologies and different models the researchers have used before us as well as analyzes an economic methodology that we will follow. Thereinafter, we will move in empirical analysis where we will study the relationship between economic and financial factors in relation to the exchange rate in both the long-term model and the short-term model. In the long-term model, we will use the independent variables in logarithms as the dependent variable of NZD/USD exchange rate and in the short model we will use the first differences of selected variables. Additionally, we will try to predict the changes in the exchange rate after the crisis of 2008 with a view to understand and make the model reliable as well as the ability of our model to beat the random walk and the ability of the short-term model to make future forecasts. Finally, we will analyze and evaluate the results of our model.