Macro: Computing DTWEXM before the FRED

In our posts on using currency indices published by the FRED to predict the NIFTY (collection), we assumed that the currency indices will be available to us on Friday before NIFTY closes. This is problematic on two counts:

  1. The FRED publishes the currency indices only on Monday afternoons, or the next business day if they were closed.
  2. The dataset uses Friday index values which is Friday New York time. NIFTY would have closed for the weekend a good 24 hours before that.

In this post, we will get around the #1 problem by computing the currency index we are interested in (DTWEXM) by using the underlying the currencies themselves and the weights used by the FRED. Here are the results:

computing DTWEXM

Apart from a few outliers, the approach looks to be good enough.

For those who are curious about how this was done, the code is on github.

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