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A New Forecasting Model for USD/CNY Exchange Rate

  • Cai Zongwu

    ()

    (University of North Carolina at Charlotte)

  • Chen Linna

    ()

    (Xiamen University)

  • Fang Ying

    ()

    (Xiamen University)

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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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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