On the Combination of Harmonics and Polynoms in Econometric Modeling of RUB/AZN Exchange Rate

Conducting a combinational polynomial and spectral analysis of time series formed on the basis of daily observations of changes in the RUB/AZN exchange rate with pronounced fluctuations for the period 11.05.2017- 02.11.2018 based on computer econometric modeling.

The purpose of the research. The possibility of describing the global rate dynamics by approximation with a combination of a nonlinear polynomial trend and harmonic oscillations of various frequencies relative to this curve; the ability to calculate amplitudes and phases, which can be used to estimate the power spectrum of the Fourier approximation; the ability to develop a high-precision algorithm for predicting exchange rate changes in RUB/AZN.

Materials and methodology. The official statistics of the State Statistics Committee of Azerbaijan were used; classical methods of mathematical analysis and economic analysis; methods of econometrics, harmonic (Fourier) analysis, statistical spectral analysis, “Fourier analysis” of the MS Excel add-in, tools of the Eviews 8 application package with the standard deviation and average approximation error being taken into account, the necessary statistical procedures required for identifying and estimating the parameters of the model and checking its adequacy and accuracy.

Results. By breaking up the empirical analysis of given time series into time-scale polynomial and time-frequency components. Combinations of the optimal degree of variants of polynomials up to the 11th degree and the number of harmonics of sines and cosines of all possible discrete frequencies were revealed.

Conclusion. This result allows us to reconsider the asymmetric impact of RUB/AZN exchange rate pressure on the foreign trade balance between Russia and Azerbaijan. An increase/decrease in exchange rate pressure affects the likelihood of a ruble-manat crisis, while this phenomenon may negatively/positively affect the foreign trade balance and may make it difficult/easier to import resources, goods and services between countries. This, in turn, adds significance to the task of further detailed structuring and analysis of exchange rate changes in RUB/AZN in the face of increased sanction pressures against Russia, thereby actualizing the development of the retrospective part of the study.

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