Modelling the BRICS Exchange Rates Using the Vector Autoregressive (VAR) Model
The paper modelled the BRICS exchange rates using the Vector Autoregressive (VAR) model. Monthly time series data ranging from January 2008 to January 2018 was used. All the analysis was computed using the R programming software. The study aimed to determine a suitable VAR model in modelling the BRICS exchange rates and determine the linear dependency between the financial markets (in particular BRICS exchange rates). Optimal lag length of one (1) was selected using the SIC. The VAR model with lag length one was fitted and the parameters were estimated. The results revealed that there is a unidirectional relationship amongst the BRICS exchange rates. The VAR (1) model did not satisfy all the diagnostic tests, therefore forecasting future values of the BRICS exchange rates could not be computed. Recommendations for different approaches were formulated.
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