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A New Forecasting Model for USD/CNY Exchange Rate

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Author Info

  • Cai Zongwu

    ()
    (University of North Carolina at Charlotte)

  • Chen Linna

    ()
    (Xiamen University)

  • Fang Ying

    ()
    (Xiamen University)

Abstract

This paper models the return series of USD/CNY exchange rate by considering the conditional mean and conditional volatility simultaneously. An index type functional-coefficient model is adopted to model the conditional mean part and a GARCH type model with a policy dummy variable is applied to the conditional volatility model. We show that the government policy indeed has an impact on the exchange rate dynamic. To evaluate the out-of-sample forecasting ability, a prediction interval is computed by employing nonparametric conditional quantile regression. Our method outperforms other popular models in terms of various criteria.

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Bibliographic Info

Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 16 (2012)
Issue (Month): 3 (September)
Pages: 1-20

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Handle: RePEc:bpj:sndecm:v:16:y:2012:i:3:n:4

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Cited by:
  1. Vespignani, Joaquin L. & Ratti, Ronald A, 2013. "Chinese monetary expansion and the U.S. economy: A note‎," MPRA Paper 46961, University Library of Munich, Germany.
  2. Ronald A. Ratti & Joaquin L. Vespignani, 2014. "Not all international monetary shocks are alike for the Japanese economy," CAMA Working Papers 2014-14, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Vespignani, Joaquin L. & Ratti, Ronald A., 2013. "Chinese Monetary Expansion and the US Economy," Working Papers, University of Tasmania, School of Economics and Finance 16874, University of Tasmania, School of Economics and Finance, revised 05 Aug 2013.
  4. Fang, Ying & Huang, Shicheng & Niu, Linlin, 2012. "De facto currency baskets of China and East Asian economies: The rising weights," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 2/2012, Bank of Finland, Institute for Economies in Transition.

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