Forecasting IQD/USD Exchange Rate in Iraq Using the ARIMA Model

Abstract

This study explores the application of the ARIMA model to forecast the exchange rate between the Iraqi Dinar (IQD) and the US Dollar (USD). Utilizing monthly exchange rate data from January 2019 to June 2024, we aimed to identify the most effective time series model for accurate predictions. After evaluating various models, the ARIMA(1,1,0) model emerged as the best performer based on multiple performance metrics, including the lowest Mean Squared Error (MSE). Comprehensive residual analysis confirmed the model's adequacy, showing no significant residual autocorrelation and approximate normality of the residuals. The forecasts provide valuable insights for decision-making and strategic planning, helping policymakers, investors(investigators), and businesses to anticipate future exchange rate movements and manage financial risks for finance planning. This study highlights the reliability and effectiveness of the ARIMA model in forecasting exchange rates, contributing to more informed economic and financial strategies.