A New Forecasting Model for USD/CNY Exchange Rate

Zongwu Cai (), Linna Chen and Ying Fang

No 2013-10-14, Working Papers from Wang Yanan Institute for Studies in Economics (WISE), 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.

Keywords: Nonlinearity; Functional-coefficient regression model; GARCH model; Index model; Quantile regression. (search for similar items in EconPapers)
Date: 2013-10-14
New Economics Papers: this item is included in nep-for and nep-mon
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Citations: View citations in EconPapers (4)

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Journal Article: A New Forecasting Model for USD/CNY Exchange Rate (2012)
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