Monte Carlo Simulation Vs classic models ARIMA SARIMAX to Forecast Exchange Rate Volatility Based on historical Data from (1961 - 2024 ) to 2034

Abstract

In an environment of uncertainty, economic forecasts face significant complexities. Well, The In an environment of uncertainty, economic forecasts face significant complexities. This study aims to forecast the Algerian dinar's exchange rate against the US( $ )up to 2034, based on actual data spanning from 1960 to 2023, using two models: the classical ARIMA model and the SARIMAX model enhanced with Monte Carlo simulation. External variables, generated using R software, included inflation rates, interest rates, global oil price fluctuations, trade balance, and foreign direct investment. The study found an overall upward trend in the exchange rate, indicating a decline in the dinar's value. Additional findings from the SARIMAX model suggest that increasing the interest rate leads to a decrease in the exchange rate (-8.9018), while the trade balance had a weak effect (0.0001). A slight positive impact on the exchange rate was observed from rising oil prices (0.0126), along with a limited positive effect from foreign direct investment