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Using ARIMA Forecasts to Explore the Efficiency of the Forward Reichsmark Market : Austria-Hungary, 1876-1914

Author

Listed:
  • John Komlos

    (Department of Economics - Tilburg University [Netherlands])

  • Marc Flandreau

    (Centre for Finance and Development - GRADUATE INSTITUTE OF INTERNATIONAL AND DEVELOPMENT STUDIES)

Abstract
We explore the efficiency of the forward reichsmark market in Vienna between 1876 and 1914. We estimate ARIMA models of the spot exchange rate in order to forecast the one-month-ahead spot rate. In turn we compare these forecasts to the contemporaneous forward rate, i.e., the market's forecast of the future spot rate. We find that shortly after the introduction of a "shadow" gold standard in the mid-1890s the forward rate became a considerably better predictor of the future spot rate than during the prior flexible exchange rate regime. Between 1907 and 1914 forecast errors were between a half and one-fourth of their pre-1896 level. This implies that the Austro-Hungarian Bank's policy of defending the gold value of the currency was successful in improving the efficiency of the foreign exchange market.

Suggested Citation

  • John Komlos & Marc Flandreau, 2003. "Using ARIMA Forecasts to Explore the Efficiency of the Forward Reichsmark Market : Austria-Hungary, 1876-1914," Working Papers hal-01065037, HAL.
    • Handle: RePEc:hal:wpaper:hal-01065037
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01065037
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    References listed on IDEAS

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    1. John Komlos & Marc Flandreau, "undated". "Core or Periphery? The Credibility of the Austro-Hungarian Currency, 1867-1913," Articles by John Komlos 4, Department of Economics, University of Munich.
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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