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A New Forecasting Model for USD/CNY Exchange Rate
Cai, Zongwu Chen, Linna Fang, Ying
Cai, Zongwu
Chen, Linna
Fang, Ying
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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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This is the publisher's version, also available electronically from http://www.degruyter.com/view/j/snde.2012.16.issue-3/1558-3708.1878/1558-3708.1878.xml.
Date
2012-09-18
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De Gruyter
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Cai_Chen_Fang_2012.pdf
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Zongwu Cai, Linna Chen, Ying Fang. 2012. "A New Forecasting Model for USD/CNY Exchange Rate." Studies in Nonlinear Dynamics & Econometrics. Volume 16, Issue 3. http://www.dx.doi.org/10.1515/1558-3708.1878