An Analysis on deterministic chaos of exchange rates during COVID -19 outbreak

Abstract

The COVID-19 influence has had a significant impact in a number of areas, including the economies of many nations. Exchange rates also show noticeable fluctuations during the pandemic period, hence analysis of the behaviour of these fluctuations is useful to make better decisions. This study aims to analyze the deterministic chaos of exchange rates during the COVID-19 period in 2020, using Poincare's definition and forecasting with ARIMA and ETS models, using R software. From 1'1 January 2016 to 3181 December 2020, daily rates between the US Dollar, Euro, British Pound, and Japanese Yen and the Sri Lankan Rupee were collected from reports of the Central Bank of Sri Lanka. Data from January 2016 to February 2020 are considered for model fitting and the forecast period is considered from March 2020 to December 2020, considering the COVID-19 first wave and the beginning of the second wave in Sri Lanka. According to Poincare's definition, the properties of deterministic chaos are depicted by all four rates, hence showing deterministic chaos during the considered COVID-19 period. Forecasts using ARlMA and ETS models also determine that the USD, GBP, and Japanese Yen show clear chaotic behaviour, while Euro rates show slight chaotic behaviour at the beginning of the COVID-19 outbreak in Sri Lanka.