ARIMA Model and forecasting of Exchange Rate of Bangladesh and Economic Dynamics

Background: This paper concentrates technical analysis to address stochastic and deterministic approach to forecast exchange rate of Bangladesh.

Methods: Using auto regressive integrated moving average (ARIMA) model.

Results: ARIMA model is useful to determine the exchange rate stochastically. Economic dynamics is discussed to achieve technology based higher sustainable GDP growth, which is the base for classical economy and forecasting. ARIMA (1,0,0) is followed for getting forecasted exchange rate with the help of Minitab software. Non seasonality in ARIMA predicted stable exchange rate for next six months (July-December, 2012), which is mostly close to actual rate.

Application: This exercise will help to forming rational expectation from quantitative point of view.