Forecasting the exchange rate of the Iraqi dinar against the US dollar using Markov chains

Abstract

The development of trade between worldwide countries is a result of development of economic relations and great openness between these countries. So, there is need to resolve problems of national and foreign currency to maintain global relations among nations. In this research, the exchange rate of the Iraqi dinar against the US dollar using Markov chains and predicting the exchange rate in the future have been investigated. It allows decision makers to take appropriate decisions in times of crisis using matrix of transition probabilities through statistical bulletins derived from the Iraqi Central Bank monthly data from 2015 to 2018. The results of the analysis showed an important conclusion that the exchange rate will remain stable for the upcoming period and then begin to rise as a result of the impact of the global crisis in Iraq.