In search of a warning strategy against exchange-rate attacks: Forecastingtactics using artificial neural networks

The contribution that this paper aspires to make is the prediction of an on coming attack against the domestic currency, something that is expected to increase the possibilities of successful hedging by the authorities. The an alysis has focused on the Greek Drachma, which has suffered a series of att acks during the past few years, thus offering a variety of such "shock" inc idents accompanied by frequent interventions by the authorities. The predic tion exercised here is performed in a discrete dynamics environment, based on the daily fluctuations of the interbank overnight interest rate, using a rtificial neural networks enhanced by genetic algorithms. The results obtai ned on the basis of the forecasting performance have been considered most e ncouraging, in providing a successful prediction of an oncoming attack agai nst the domestic currency.